Interactive Investor

Euro dollar: where next for the currency pairing?

After previously correctly predicting a drop target, our analyst this time looks for recovery potentials.

12th August 2020 10:05

Alistair Strang from Trends and Targets

After previously correctly predicting a drop target, our analyst this time looks for recovery potentials.

EURUSD (FX:EURUSD) 

It can be funny reading analysts’, sometimes frantic, attempts to find a reason for a market movement. We witnessed this frenzy on Tuesday, with world index growth being attributed variously, to "bond stimulus", "interest rates", "gold reversing", even the S&P nearly hitting a new high. No one actually knew the root cause - perhaps it was just because it's summer.

Jeremy Warner, Telegraph columnist, wrote:

"In money we trust, or maybe not so much these days. A rising gold price and weakening dollar can both be seen as signals that trust in sovereign currency could be going the same way as trust in government, institutions, and mainstream political leaders."

Despite the price of gold crashing by more than $100 (£76.6) since his article was published, the guy maybe has a point. 

One which will explain the constant flux in currency movements, index movements, crypto currency etc. 

Essentially there's an awful lot of uncertainty at present, doubtless 'Covid-19 provoked' due to hesitation over economic recovery, second waves, political competence, and of course what's going to happen as schools return. 

What surprises, despite all these reasons for nerves, was our article on the euro vs the US dollar in September last year. 

In it, we proposed criteria for the relationship to founder to $1.0635. 

On 20 March this year, six months after our original prediction, the pairing exactly hit our drop target. 

Importantly, the target was not broken and thus, suggesting further weakness. Instead, the relationship hit $1.0635 and bounced. 

Despite deserving a ‘smarty pants’ award for this prediction, we're more interested in movements since our drop target was successfully achieved, as it implied the presence of strength. 

Now, with the pairing flirting with the downtrend (blue) since 2008, the price needs only now to exceed  $1.190 to suggest the potential of further recovery to an initial $1.2169 with secondary, if exceeded, a visually sensible $1.2445. 

To be fair, we already suspect the pair shall head to $1.2445 in the fullness of time (remember, our grasp of timeframes is dodgy). 

Only with closure above $1.2445 shall we believe the euro is headed for great things as strong recovery looks inevitable. 

To cancel the prospect on the immediate cycle, the relationship needs founder below $1.10 as reversal now to $1.0418 looks very possible as a future ‘bottom’.

Source: Trends and Targets      Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.