The EUR USD Weekly Chart shows that the currency pair is in a critical zone based on recent history.
The EUR USD Weekly Chart is in a very temporary place if recent history is a guide. Granted, all rates are temporary, but this particular price zone appears to be a bit different from others. The price just does not hang around in this area for a long time and this is on a Weekly Chart. Interestingly, the price has not frequently entered the current price range either. Let’s examine.
The EUR USD Weekly Chart in the Past Decade
This is EURUSD during the past decade. For what seems to be such a median price zone for this currency pair, it is actually not an area where the rate lingers for too long. In fact, the price had not been in this zone since late December 2014. The four prior times before December 2014 that the price troughed in this zone and one time briefly through it, the price bounced back up in bullish fashion. However, in December 2014, EURUSD crashed through the bottom of it emphatically as evidenced on the above EUR USD weekly chart.
From May 2002 through April 2012, the EUR USD Weekly Chart Looked Like This
The zone is evidently a resistance zone that the wicks of candles touched prior to 2008 before launching off during the precursor era to the Financial Crisis. However, it was not uncommon for the price to linger around here from May 2005 though April 2006, which is quite a long time compared to the periods after. 2004 was largely spent in this zone as well.
EURUSD in the Current Price Zone
|Year||Number of Weekly Bars in the Price Zone|
It is evident that since the market run up that came before the Financial Crisis, this zone between 1.21039 through 1.24626 is a transitional zone and it is not an area that the price settles in like it did before this time. What makes this instance different is that the price had been below the zone for three years and coincidentally re-entered the zone almost exactly three years later. Isn’t that something?
The first two times a candlestick body entered into this pricing zone after the Financial Crisis for EUR USD was during the Summer Months (for those in the Northern Hemisphere). These are the months that Europeans and Americans typically go on holiday, it’s Summer Vacation in the United States. However, the third time took place during peak season (November 2014) and it completely fell out of the zone with a gap down once Christmas/New Year’s was over. The price was not going to lollygag around and in January 2015 and it did not come back to that point until it became passe to wish someone a Happy 2018.
If the trends from the past decade hold up, the price is going to move out of this zone very quickly. It’s already spending an uncomfortable amount of time there as is based on recent history. It could also be a sign that with rising interest rates in the United States, it creates a different atmosphere altogether, one that is a bit of a throwback.
Back to the Future? Pull up the Interest Rate Charts!
The previous period of interest rate hikes from the Federal Reserve were from June 2004 through June 2006. With more hikes currently expected, it is possible that the many of the assumptions from the past decade are thrown out altogether and it may be time to look back at the old EUR USD weekly charts to see how the market reacted during that era. While the hikes were taking place, the Euro initially strengthened against the U.S. Dollar and then as the rate hikes continued, the U.S. Dollar strengthened against the Euro and then the market flirted with this aforementioned price zone dipping in and out of it. Once the rate hikes stopped and the Federal Reserve stood pat with the 5.25% Fed Funds Rate, the U.S. Dollar weakened considerably against the Euro.
When rate hikes took place in 2004, the Eurodollar was breached in a bullish fashion. However, the first time that this zone was breached was in November 2003, which was when the Euro was gathering strength against the U.S. Dollar. The EUR USD rate had not previously been this low since 2003 in the first place.
During the time of tightening in the U.S., the European Central Banks (ECB) remained flat with their rates. The first rate hike took place in December 2005, it was a 25 basis points. 18 months after the Federal Reserve started taking action. However, the ECB raised rates when the U.S. was standing pat only to drop rates themselves at a fast pace following the Federal Reserve. The ECB was doing what the Federal Reserve was doing just a bit later.
Apparently, the ECB is expected to follow the Federal Reserve in hiking their comically low interest rate. It is common to see negative interest rates from banks in this region and now this may change in mid-2019. Yes, it is a bit of history repeating, which would mark it being roughly 3 1/2 years after the Federal Reserve’s first interest rate hikes in the wake of the Financial Crisis.
Times are different from the mid-aughts. There is greater political instability and angst in both the United States and European Union. The wars are fought at home rather than abroad, almost on a literal level. Secession, nullification, nationalism and the desire for home rule are the major themes that need to be addressed. Rather than looking outward (as in the aughts), in a world that is more connected than ever, everyone is looking inward.
It’s a different environment, but the rate has been in this price zone this year longer than any other year in the past decade. If it remains there longer, it may be time to look back at the charts from 2004-2006 for wisdom projecting forward. Isn’t it interesting to see how technical analysis and fundamental analysis collide?
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