The €/$ exchange rate represents the exchange rate of the euro in US dollars, i.e. the value of a euro in US dollars (USD). It is the most widely traded financial instrument in the world and it changes freely in a flexible exchange rate system, following supply and demand on the interbank market, since the two central banks, the Federal Reserve and the European Central Bank, only very rarely modify exchange rate developments.
From a technical point of view
The long-term trend in the exchange rate remains upward, with the post-1985 lows rising (2001 and 2017). This is also confirmed by the presence of the green uptrendline marked by the 1985 lows, now in the 1.07-1.08 area.
Narrowing the time horizon, the situation is very tense, as the quotations are right next to this dynamic support (1.08), with a positive divergence of the MACD indicator, which suggests a marked slowdown of the start descent from the highs at the end of 2017. It should be remembered that the indicators/oscillators send signals that try to anticipate future price movements, of strength or weakness, with the presence of divergences from the quotations.
EUR/DOLLAR – WEEKLY CHART
The American and European bond
Analyzing the yields of the TNote 2y (USA) and those of the Bund with the same maturity (Euro), it can be observed that, when the two yields start to diverge (from 2014), with an increase in the yields of the Tnote (from 0.5% to almost 3% at the end of 2018) and a simultaneous drop in the yields of the representative European one from 0% to -0.90%, the €/$ exchange rate was affected, generating a vertical drop, from 1.40 to 1.05.
Moving on to more recent times, the yields of the TNote (from the end of 2018) have begun to contract sharply, losing about 87% (from 3% to 0.37% of the 16 mazo), while those of the Bund have contracted more modestly.
Therefore, the possible convergence of yields could benefit the single currency compared to the U.S. currency.
The most interesting part is the cyclical
In this case it is possible to see that on a monthly time frame, starting from the minimums of 1985, 3 cycles of different time horizons start.
– the long term cycle (red sinusoidal curve at 16 years from a minimum and the following one)
– the medium-term cycle (green sinusoidal curve at 8 years from a minimum and the following one)
– the short term cycle (yellow sinusoidal curve at 4 years from a minimum and the following one)
EURO/DOLLAR – MONTHLY CHART
When the three cycles move in a same direction:
– upwards (1985-2001-2017), the three cycles begin their ascent at the same time, the push that prices give is strong and decisive;
– downwards (1999-2014), the three cycles move downwards, completing the cyclical closure of all 3 time horizons.
The following principle applies
The long term cycle is the predominant one, so if it is set upwards, the medium term one will tend to influence it in a minimal way while the short term one will be irrelevant. The opposite is true.
In conclusion, the 3 cycles started in 2017 and the short term cycle (4 years) should be completed by the end of 2020. In spite of this, the medium and long term cycles are still in the growth phase, therefore, next reaction movements with first potential targets set in the area 1,2000 and 1,2500 are not excluded.
|Selling Area 2||1.1100|
|Selling Area 1||1.1000|
|Buying Area 1||1.0800|
|Buying Area 2||1.0600|