The writer is a technical analyst at Bursa Graf from the Guiding Group
What is technical analysis?
A method for making an investment decision in the capital markets, which is based on market behavior. The graph is the final result of the decision-making equation of all investors in the market, thus embodying all the information relevant to the decision
There is nothing like the long graphs to teach about processes that go through markets, shares or currency pairs. The popular opinion that the technical method is suitable for the immediate ranges is fundamentally wrong. If I were to show you a graph and neutralize the time dimension from it, you would not know if it is a quarterly, monthly, weekly graph or one that represents a few minutes. What indicates the way, the process, is the behavior. And the behavior is the same in every time dimension.
The power relationship between the euro and the dollar has seen ups and downs over the years. If you ask me, since the record price, which was set at 1.6030 dollars per euro in 2008, I would say that it has mostly known ups and downs. The tremendous advantage of the quarterly chart is its ability to iron out the rants that analysts like me spew about the short term. In this graph you can see the direction, and if you choose correctly, the returns you will make will not be late in arriving.
A look at the quarterly chart will show us first that the level of 1.2243, which was a support level over the years, broke down, and became used as a resistance level. Although it happened a long time ago, and it is less relevant today, this behavior is of great importance, because it opened the process that will lead the euro to a price of less than a single dollar.
Now that we’ve put the history in place, let’s lay out the relevant elements to consider. And remember that this is a long process, represented by the quarterly chart where each candle represents a quarter.
The long-term trend is a clear and unequivocal downward trend. The high points are arranged in a horizontal structure, and the low points are descending.
The current streak, which started at $1.2350 per euro, is a falling streak with no signs of ending, so any increase will be nothing more than a spot correction.
The sequence is below the moving average for five quarters, one whose side slopes down, and the meaning is that the momentum, the momentum, is negative.
The worst scenarios happen without you noticing
From the beginning of 2018 to the beginning of 2021, the euro fluctuated against the dollar within limits that ranged between 1.2350 as a resistance level and between 1.09 as a support level. The depth of the shuffle as measured from top to bottom is therefore 1,450 basis points.
History has taught us that in a breakout of a shuffle up or down, the market will tend to make a minimal move that will be the same length as the depth of the shuffle. Simply put, from the 1.09 level, which was the support level broken below, the euro should weaken to at least $0.9450 per euro.
Sound cliché or delusional? Remember that the most illogical, illogical and implausible scenarios to your sensitive ears have been set in motion without you noticing. Little reminders? Teva, the 2008 crash, the rapid collapse of Netflix and the crisis in bank stocks, which were truly considered stocks that could not go down. And here I will stop so as not to depress you any more.
In conclusion, the Euro-Dollar ratio tends to be negative. The euro has been weakening for a long time, and in the long-term view there are no signs of slowing down. Whoever it does this to should be pleased as the long-term expectation is to see the euro lose ground and retreat below the $1/euro level.