Chart Of The Day: Politics, Economics Play Tug-Of-War With EUR

Chart Of The Day: Politics, Economics Play Tug-Of-War With EUR  | Nov 20, 2017 10:02

By Pinchas Cohen

Opposing Forces Struggle To Dominate The Euro

To an technical analyst, what’s going on right now with the euro is fascinating.

The forces currently driving the common currency are politics and economics. What’s so interesting about this dynamic is that they are pulling the euro in opposite directions. An additional level of irony: both forces originate from the same country—Germany.

Nearly two months ago, Chancellor Angela Merkel lost 20 percent of her support, after the country's general election at the end of September. That support shifted in favor of the CDU/CSU, the far-right, anti-immigration party. From the election on September 24 through the 7th of November, the single currency fell 3.35 percent versus the dollar. Sustainable economic growth in Germany and the eurozone, topped by a scaling back of accommodation by the ECB caused the euro to rebound around 2.00 percent, paring post-election losses to roughly 1.35 percent.

The news of the collapse of Merkel's efforts to build a coalition over a dispute on migration policy (which is the platform on which the German far-right wing party climbed to second place) just before midnight, sent the euro into a 0.63 free-fall during Asian trading. However, between 2:00 and 4:00 AM EDT the euro rebounded, more than just wiping out the losses of political uncertainty, but actually climbing 0.8 percent higher than before Asian trading sold-off the coalition collapse. This was triggered by positive news out of Germany, in which both German PPI MoM and YoY met estimates, rising 0.3 percent and 2.7 percent, respectively.

Still, both forces continue to struggle for domination of the euro.

EUR/USD 60-Minute Chart

Euro Rebound Cut Short

The currency's rebound on the economy’s sustainable growth was cut short when the price reached the top of a falling channel, in which the single currency has been trading since last Wednesday. This channel represents all the known and unknown reasons that motivate investors to sell the euro. The struggle over the channel-top, which marks the angle in which sellers overcome buyers, clearly demonstrates their indecision on the impact of political instability, which may potentially impact the EU during Brexit negotiations and rising tensions in the Middle East.

An upside breakout, with a close above 1.1810 would suggest that economic growth outweighs political uncertainty, while a close beneath 1.1780 may indicate the euro will retest the 1.1730 former trough, before it may resume its retest of the November 7, post-German election low of 1.1554

Trading Strategies

Resumption Of Downtrend: Go Short

Conservative traders would wait for a close below 1.1780, a return to retest the channel top and confirmation of its integrity, with a close lower than the price action of the preceding up hour.

Moderate traders would wait for a close beneath 1.1780, and maybe also for a return to the channel-top for a better entry, depending on risk aversion.

Aggressive traders may short now on the close back within the down channel, as well as falling two consecutive hours to boot, as a form of a whipsaw filter.

Upside Breakout: Go Long

Conservative traders would wait for a close above 1.1810, then wait for a likely return-move to retest the violated downtrend line and confirm its now-support, with a close higher than the price action of the preceding down hour.

Moderate traders might wait for a close above 1.1810, then wait for a likely return-move for a better entry.

Aggressive traders may go long on a close above 1.1810, with a stop-loss at least beneath the 1.1800 round-psychological price, if not the more cautious stop-loss beneath the down-channel top, likely under 1.1780, depending on the angle at the time.

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors. is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.