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Next Support Levels for Euro: $1.16, then $1.03 — Charts

It's just a few weeks since my last note on the euro-dollar but I think an update is appropriate given the continued battering of the single currency.

I mentioned in the previous chart analysisthat the euro could fall quickly to $1.03 once the $1.19 mark (a particularly significant support level in 1998 and in 2003) has been breached, which happened on Monday.

The fall towards $1.03 may feel like a freefall plunge, but it is constrained by other technical features.

The euro is defined by a series of support and resistance bands. The positioning of these bands is important from an analytical perspective because it provides a method to project the future downside targets.

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The most important trading band is between $1.24 and $1.29. The width of this band is measured and projected downwards. It gives a downside target near $1.19. This support level has been breached.

The next historical support level in the immediate short term is $1.16. There is a higher probability the fall will dip towards $1.13 with a penetration to and a rebound to $1.16. This is the most bullish outcome in this environment.

However, in the longer term the next strong historical support level as noted several weeks ago, is near $1.03.

Setting downside targets based on support levels and technical projection is useful, but it doesn’t help traders identify the conditions necessary for a trend reversal.

The most significant feature on the chart is the downtrend line. The Euro must be able to move above the downtrend line before there is any possibility of a new uptrend developing. On the current positioning, that requires a rebound above $1.28.

Another key feature is the development of consolidation patterns. This is where the momentum of the fall declines and price develops a short term rally and rebound pattern, usually based around the technical support levels.

Unfortunately, there is little indication of support developing at the moment, so the lower targets, including the $1.03-markm must be factored in with any currency planning.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

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