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Euro/dollar continues grinding down to new lows, and enjoys no festive season.

The team at JP Morgan  examines the long term charts as we near the end of the year and have some interesting conclusions:

Here is their view, courtesy of eFXnews:

The big picture in EUR/USD is clearly favoring the bear scenario, which assumes that we are dealing with a broad double-zigzag consolidation pattern, notes JP Morgan.

“Within the latter we would have started the completing C-wave down at 1.3993, which has a projected target at 1.1091, assuming that wave C down would roughly extend to the length of the preceding wave A (May 11 – July 12),” JPM projects.

The tricky issue in this whole setup is the fact that we can already identify a clear-cut 5-wave structure within the decline from 1.3993 so that the accumulation phase (wave I) within the broader C-wave down could be at or close to completion. This entails an increased bounce risk, which would only be delayed in favor of a straight attack on former lows at 1.2042, at 1.1876 and at 1.1641, via a break below weekly trend line support,” JPM warns.

EUR USD T Junction on long term forex charts euro dollar at critical point Christmas 2014

That said we remain on alert for signs of trend exhaustion as an internal wave II rebound could stretch out to 1.3175 (int. 50 %) and possibly to 1.3607 (int. 76.4 %) at a later stage. For such a broader recovery to be confirmed though, it would take a break above the main T-junction at 1.2871/88 (minor 38.2 %/pivot). Below, the long-term bears remain in their comfort zone and former lows in focus next. These would need to give way to pave the way for an extension to 1.1091 (C = A) and possibly to 1.0072 (76.4 % of the 2000 – 2008 rally),” JPM clarifies.

So taken everything together, we remain bearish for EUR/USD despite the losses already suffered, but remain on alert for signs of trend exhaustion. As long as keyresistance at 1.2871/88 is not taken out though, we see the bears in control and former lows between 1.2042, 1.1876 and 1.1641 at risk,” JPM advisees.

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