EUR/USD has reached a downtrend resistance line dating back from 2008 and is being rejected, squeezing down to previous levels.
The non-stop influx of news from Ukraine takes its toll on the common currency. However, if tensions subside, a breakout above this significant line could certainly be meaningful.
Dan Blystone at FX Examiner pointed out this chart in this FX Chart Notes article. Here is how it looks like:
As you can see, the line stretches from the peak above 1.60 that the world’s most popular pair reached just before the Great Recession, and was touched again back in May 2011, just before the euro was hit with a deterioration in Greece.
As the month of February ended, the line got closer: from 1.3874 to 1.3842. The peak in February was 1.3825, just 17 pips from the veteran downtrend resistance line. The rejection from this line, which began with a weekend gap, sent the pair down to 1.3730 at the time of writing.
1.3894 was the high of 2013 but was reached when trading volume was extremely low. On the monthly chart, we see significant support at 1.3480, which was the bottom both in February and in January 2014.
At the moment, there are reports that the Russians have given the Ukrainians in the Crimea peninsula an ultimatum to surrender or face an assault. So far, no shots were fired, but the situation could fire up at any moment.
Hopefully, war is averted. In this scenario, and assuming the ECB doesn’t act on Thursday (based on the surprising inflation numbers, there is a good chance for that), we could see a recovery.
A recovery that makes a convincing break above 1.3842 opens the door to 1.40, as this monthly 5.5 year line looks like a big one. For another look at this line and also at uptrend support that accompanies EUR/USD, see Dan’s article here.
If a war erupts on the edge of Europe, it will not be good for the euro, especially as it would also put upwards pressure on the Swiss franc, and the 1.20 floor under 1.20 could break.
What do you think?
For more events, lines and analysis, see the EURUSD forecast.
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