EUR/USD began a strong downwards move, falling now 60 pips below the previous multi-year low of 1.2110 set earlier this year. The move could be the result of an expiry of double no touch options, Hungarian worries and of tensions towards the NFP. 1.20 is a critical level eyed by traders, economists and politicians.
Euro/Dollar reached a new swing low 0f 1.2050, falling off over 100 pips from the previous trading levels of 1.2170 seen earlier in the day. This sharp move pierced through the 1.2142 level that was set a few weeks ago, and through the fresh low of 1.2110 set this week on fears of a double dip recession in Europe.
Update: Non-Farm Payrolls were disappointed. This triggered risk aversion, that sent EUR/USD to 1.2016, but it bounced back to the 1.2050 area. The battle for 1.20 is quite tough.
Update 2: EUR/USD dropped below 1.20 and closed at 1.1968.
Double No-Touch Options and NFP
There are talks about double no-touch options that locked EUR/USD between 1.21 and 1.25 during the past week, and that these options were set to expire today. The other possible explanation is the high tensions towards the Non-Farm Payrolls.
In many previous releases of the NFP, the markets went in one direction before the release, only to leap back in the other direction after the released. This could well be another V-shaped move, so caution is recommended.
The third reason for the drop comes from Hungary:
Hungary’s economy is in a “very grave situation” because the previous government manipulated figures and lied about the state of the economy, Peter Szijjarto, a spokesman for Hungarian Prime Minister Viktor Orban, said at a press conference in Budapest.
Hungary doesn’t use the Euro, but it’s a part of the European Union as well, with debt to Euro-zone countries such as Germany, Austria and France among others.
If 1.20 is convincingly broken, an avalanche is possible. The next technical levels are 1.1820, which was a line of support back in 2006, and 1.1630, which is a tough line. A break under 1.1630 will send the pair to the lowest levels since 2003.
A recovery will meet several minor resistance lines: 1.2142 is the immediate one, followed by 1.2330 and 1.2460.
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