Why 1.05 Is Far More Important To The EURUSD Than Parity

Tyler Durden's picture

As we noted first thing this morning, and showed again in the daily summary, there was a furious defense of the EURUSD support at just below 1.05, a level it briefly breached overnight before a massive buying storm/short squeeze was unleashed.

 

Why the defense, and why is 1.05 (and just under) so important?

As it turns out, this is perhaps the most important level for the EURUSD, more important to chartists and technicians than even parity. SocGen's Albert Edwards explains why:

Although the market seems obsessed with the euro/dollar parity, SG's Technical Analysis guru Stephanie Aymes stresses that it is the $1.05/1.04 level that is more important, being the lower limit of the EUR/USD?s massive upward channel (see chart below). Stephanie argues that the move since last summer has been relentless and is very similar to the one seen in the late 1990s. She suspects that a break below $1.05/1.04 will confirm that the ongoing move is not a correction of the upmove since 2000, but a much larger down move.

 

What happens if 1.05 is indeed solidly breached to the downside? 

In such scenario Stephanie says the EUR/USD will achieve parity, but this may well be just a temporary support before the downleg extends towards $0.98/0.96 - and even perhaps towards the lows of $0.84/0.82 reached in 2000.

One can be confident that should EURUSD 0.82 hit, that at that point not only the S&P 500 will be screaming, but all of Congress, as the corporations who control it will be very, very angry.

And since the support level is so very critical, don't bet that it will be breached that easily:

The euro though may need to pause at this stage with technical indicators obscenely oversold ? e.g. both daily and weekly RSIs are down at only 15. In addition, speculators have been heavily short the euro (on the CFTC data) and having benefited from this move, a lengthy period of consolidation may now be necessary before the key 1.05/04 support is taken out.

If Edwards is right, where will the USD bulls focus their attention next, and which USD pair will go parabolic next? It may very well be the original pinata: the Yen.

Keep an eye on the yen. Euro consolidation at current levels may pass the devaluation baton back to the Japanese. And let’s not pretend that back in November we didn’t make a bold forecast that the yen would decline to Y145/$ by end-March. We may be running out of time for that, but recent savage moves in other dollar crosses should warn investors that a rapid move to Y145 on a clear break of Y122 is entirely plausible. If this happens then keep an eye on the rising euro trade-weighted index (during the yen?s consolidation the ?/yen slipped from Y150 to Y128 currently ? the lowest level since August 2013.)

It is unclear if the JPY will be the next EUR. One thing isas long as the Fed pretends it can continue pushing the USD higher with implicit threats of a rate hike, the worse the US macro economy (already at the worst start to a year since Lehman), and the lower US corporate earnings will be before the Fed too gets a tap on the shoulder from its real shareholders.

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kaiserhoff's picture

Diagramme und Grafiken für das Ende der Welt.

Well the Tylers must be doing something right.

They got the attention of the Stuxnet mafia.

max2205's picture

If the euro gets to .75  I will buy a mansion in France and get taxed to death and die penniless 

lordkoos's picture

So, live well -- you can't take it with you.

Big Brother's picture

Actually, the French have a phrase for that, "bon vivant" - "one who lives well".

tarabel's picture

 

 

Another French phrase for that:

Le bureaucrat.

GoldSilverBitcoinBug's picture

Another ones:

Taxes, Socialisme, Etatisme (Statism), Gauchisme (Leftism), Impôt Sur la Fortune: ISF (Wealth tax), Sécurité Sociale and RSI (Social Security) who steal between 47 to 55% of your business income provoking bankruptcies and two suicide per days of small business owner.

Source ?

I'm French and live here...

farmboy's picture

Haha, do they mean parity  with the South Euro or the North Euro looking at things are going with the Greeks.

ANestIOS's picture

south euro breaks support, north euro bounces to new highs, kindalike fundamental particle physics (I love the technical analysis lingo:-)

Fun Facts's picture

The central bankers aren't stupid. Well, maybe they are, but they defend key technical points simply to get the most bang for their ponzibucks that way.

disabledvet's picture

I think the bigger worry is the Mexican peso.

 

The dollar has absolutley moonshot here in a very short period of time.

 

This should not happen in the first place.

 

No I do not support "targeted sanctions" on Venezuela either.

 

If that Mexican peso goes from 15 to 45....

kaiserhoff's picture

What's the problem?  They are all here already.

Have  you seen Orlando lately?  Porto Rico must be deserted too.

zvzzt's picture

Looking at EUR/MXN the outlook is choppy but rahter flat. Even a hint of bearishness for the EUR relatively to MXN. In other words, MXN just as bad as EUR (performance wise, fundamentally I do not know (or care)). 

Yen Cross's picture

  The tea leaf readers are hoot. You can tell this analyst is fairly young.There's many more $Trillions in play then there were in the late '90s. She is also forgetting the rebalancing that took place in the early 2000s.

  The $ long traders are like the MOMO equity market traders.They jump on the train when it's approching the cliff instead of when it's leaving the station and fuck all their clients over talking their blabber and their books. I could get better advice from the local shoeshine boy.

 FWIW I expect the $usd to retrace back to the 96.00 area. 20 Day SMA & 23.6% Fibi of the move from last May to yesterday. I'll reaccess then.

hroerekr's picture

I wouldn't be so sure about a North Euro just yet. If such a scenario is true and that level becomes a de facto, albeit unofficial "peg", it will get most likely under attack, just like the EUR/CHF peg was during the last years. The defence of such a level means there is a safe/assured trade and this will attract many traders to bet their money into it.

A move not without risks to be sure, but the vast majority of traders are interested into a sure bet! So do not bet on a rising Euro just yet. "Beggar thy neighbor" is too easy (and stupid) a policy to be abandoned quickly. Besides, the debt stricken Eurozone countries are dreaming of a weak currency to ease their debt servicing and increase their exports.

I guess time will tell!

Chalan's picture

Euro It's coming down with speed, so even if that up trending line halts the slide at best it will bounce weakly then form a small base for a few weeks to break down and continue in the prevailing direction, I don't see a the catalyst to give strength to the Euro with the their QE just beginning.

 

I'm surprised the foolish European Union politicians were comfortable with anything more than parity for sooo many years, as we all ZH Readers know strong currencies lose their exporting side of their economies.,

Yen Cross's picture

   The euro is going to consolidate for awhile. Draghi is going to have trouble finding enough bonds to buy which will reduce downward pressure on the euro. The U.S. macro is deteriorating and after the fed. next week traders are going to jump back into bonds. That will narrow the yield differential with European bonds.

 The euro might go to parity, but not much more.

Big Brother's picture

No more bad news + 22.50 on RSI = Oversold.  But it's been a good run for those short for the past two weeks.

welostyourgold's picture

OK, somebody bottom line it for me.  When do I buy a few thousand of them.  I like those big 500Euros -wlyg

Dollarmedes's picture

Freedom isn't free. It costs a buck-oh-five. Coincidence?

JacksBalanceSheet's picture

No, the most important number is 1.058008 because it spells BOOBS on my calculator.

zvzzt's picture

In Dutch, but charts say it all.... or google translate. EUR/USD target there suggested up to 0.8225

http://www.buyem.nl/special-euro-overzicht/