Four Charts That Signal EUR Has Further To Drop

Tyler Durden's picture

EURUSD drop may have further to go given that the relative policy outlook would push Fed/ECB balance sheet ratio lower before long. Citi's Valentin Marinov believes, relative data surprises as well as forward looking cyclical gauges like bank stocks are starting to favor USD over EUR and he points out that leveraged accounts could start adding to shorts again as real money continue to sell EUR.

Via Citi,

The July ECB meeting underscored the prospect for larger ECB balance sheet from here. The upcoming Fed minutes and speeches as well as Yellen’s semi-annual testimony in coming weeks could highlights that the bank is firmly on course to exit QE before long. The diverging policy outlook should be reflected in falling Fed/ECB balance sheet ratio (Figure 1).



The divergence is further underscored by the growing disparity between positive economic surprises out of the US and disappointments out of the Eurozone (Figure 2).

The data seem to have fuelled concerns about renewed cyclical downturn in the Eurozone while strengthening market belief in the US recovery. Given that bank stocks are a good forward looking gauge of cyclical outlook, the latest development pushed the EZ/US bank stocks ratio lower again (Figure 3).


Last but not least, investor positioning seems to suggest that leveraged accounts cut their EUR-shorts and could add again as real money keep selling the euro (Figure 4).


We expect the ratio of ECB/Fed balance sheets to move lower before long. Given the historic correlation between EURUSD and the ratio of Fed/ECB balance sheet - this should underscore the downside risks to EURUSD (Figure 1). We simulate that ECB/Fed balance sheet ratio assuming that:

1/ The ECB's balance sheet would expand by ca 250bn as a result of the two T-LTRO tranches in September and December 2014. This follows on our assumption that about 150bn of T-LTRO would be taken up by banks in the periphery and (mostly) used to repay LTRO loans. The T-LTRO take-up is assumed to increases by 100bn in March and June 2015.


2/ The ECB balance sheet grows by additional EUR1tn of unsterilized ABS and government bond purchases in June 2015;


3/ The Fed's completes taper by October but continues to reinvest proceeds from its portfolio thus keeping the size of its balance sheet.

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knukles's picture

Who cares anymore.
Europe is fucked up beyond any and all belief and is at this juncture, irreparable.
Perhaps more so that even Africa.

The Euro.
A fiat currency in search of an owner

To wit:  Where's Chinese money going? Africa or Europe?
Who's Putin screwing with no push-back?
Where are the ISIS mobs going to call home next?


Say, I think I got a border, an open border I can sell ya'.

kowalli's picture

Actually all world fack up because of Fed and all countries are trying to find a way out.

- Japan just dead

-Europe,China has industry,but hasn't enough resourses

- USA has only 23% of industry of the max

-Russia has problems from decay of USSR

and all have problems with the corrupt bankers

So if dollar is gone, and he are moving this way already, USA became 3d world country for -30-50 years 

DoChenRollingBearing's picture

O Technical Analysts!  Please tell me what The Charts have to say about Bitcoin.

Technical analysis never worked for me (although I have a friend or two who swear by it), not for gold, not for stocks.

I don't know what the price of Bitcoin is going to be.    No idea of what it will tomorrow nor next month.


But I am learning how to hide it better...

kowalli's picture

I personally think - bitcoin is another fraud.

Fuh Querada's picture

technical analysis - voodooism tarted up to con you into thinking that future prices can be predicted by past data. If it worked everyone using it would be stinking rich and con men llike Prickter wouldn't have to hawk a newsletter.

buzzsaw99's picture

imo the euro is pegged at 1.35 and the yen at 102

the ecb and fed will buy whatever the bank gangsters and billionaires tell them to buy

DeadFred's picture

The two factors I see that trump all the technicals for the euro (and I strongly believe in most charts) is the unofficial peg and the possibility of a geopolitical takedown of the dollar. They will do what they can to keep it near 1.35 and if/when people seriously believe reserve status is over the euro will be golden depite all its flaws. I wouldn't trade euros unless I became one of those bankster billionaires with the inside track.

orangegeek's picture

if we get a move below 1.35, we are heading much lower


the USD is still trying to push up, which will drive the Euro even lower

logicalman's picture

Blah blah blah

more useless numbers about worthless bits of paper and digits on hard drives.

When is trust going to evapourate???

If you can figure that out, you are, for sure, golden.

Trying to divide zero by zero gives even mathematicians headaches.



Oldwood's picture

There is no trust, only the potential opportunity to steal. I don't think gamblers ever question the honesty of their casino. Their biggest worry is getting ejected for cheating. I don't think that happens in today's marketplace. I think they give awards for audacity.

user2011's picture

Why bother to look at charts ?!   Charts are for the manipulators to short sqeeze the believers of charts.     The market is beyond analysis.   It becomes a game to guess which way will the manipulators try to push today.


nathan1234's picture

Part of the US Blackmail plan to make Europe agree to their demands

It's time Europe asked them to make a kite out of their currency and go and fly it.




Kreditanstalt's picture

One or another or more of these paper currencies rises or falls versus others.  What I hope to see is ALL of them start falling against real goods.  

THEN I'll know there is economic honesty and justice.

AdvancingTime's picture

The games central bankers are playing in supporting their and other currencies has reached a dangerous level, we may be in the "red zone". History has shown that in the past both leaders and governments have fallen with the demise of their coin.

If people lose faith in the system it could just come crashing down around our ears. At a time when billions of dollars can be traded in just the blink of an eye imagine how fast things could go to hell. More on this subject in the article below.

LawsofPhysics's picture

Correct, only this time, it's a global collapse.  Fun times ahead.

AdvancingTime's picture

Europe bought time to fix their problems but have very little or nothing! I have not written much about the Euro-zone as of late because nothing is really happening. The Euro-zone is engaged in a talkathon.

With fear of an immediate collapse off the table the members of the Euro-zone much like their political counterparts in America just talk about solutions without any action. For us in America news from across the pond dribbles out in small doses with almost daily media boost of promises that things are getting better. For more on all of "what is not happening" see the article below.

atoast2toast's picture

Citi retail vs real is the opposite of latest CFTC COT data and a complete contradiction of something posted here lately. Leveraged money are betting on a decline. Producer hedger are buying Euro here. 

I would love to know what is behind this claim:


investor positioning seems to suggest that leveraged accounts cut their EUR-shorts and could add again as real money keep selling the euro


Pretty weak article.