For the past few months, the euro has been gaining ground against the US dollar, but, as this chart shows, it may be running out of steam.
See, Europe’s common currency has been pushing higher in a textbook “rising wedge pattern” (white lines), where the slope of the lower-bound support line is steeper than the upper-bound resistance line. This tells you that higher price lows (support) are developing faster than higher highs (resistance). That’s what creates the wedge-like shape.
Typically, this pattern is considered bearish for an asset: as the two lines pinch closer, the price usually breaks lower. So you can assume that a lot of traders will already have orders in to sell the euro if it breaks the lower support line and to exit the trade if it breaks above the resistance line at the apex of the wedge (small purple arrow).
For a lot of them, the profit target would be the distance between support and resistance at the beginning of the wedge (back in November), projected downward from the break point (that’s the big, vertical blue arrow). If that plays out, it would result in a really hefty move lower, so take these targets with a pinch of salt and look at other key price levels too – such as the 50-day (yellow line) and 200-day (blue line) simple moving averages.
Technicals aside, there are other factors that could work against the euro. Mostly, they have to do with uncertainty about the US economy and the path of future interest rate increases. Those things could snap the greenback out of its recent weak spell and send it higher against its rivals again. If you think the euro will fall further against the dollar, you could consider the Invesco CurrencyShares Euro Trust ETF (ticker: FXE; expense ratio: 0.4%) or trade via your broker.
/3 • Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.