Here’s Why EUR/USD Could Hit Parity in 2016
The EURUSD has already seen a massive decline over the past few years, but this might just be the beginning. Based on some new developments, I’m expecting a massive Euro to Dollar exchange rate crash in 2016. Let me explain…
Talk to any technical analyst and ask them the most basic principle when looking at charts. They will tell you to follow the trend. When it comes to FOREX trading, the direction in which a currency pair is trading could last for a very long time.
With this in mind, take a look at the weekly chart of the EUR/USD pair below and pay close attention. Several phenomena are taking place.
The EUR/USD pair has been in an outright downtrend (black lines) since at least 2009 and we haven’t seen anything change since.
Also, the euro to dollar is trading well below its 200-week moving average and is finding resistance near its 50-week moving average. Since September, this moving average has acted as a resistance at least three times.
At the very core, these moving averages confirm that long-term trends remain to the downside and pessimism persists.
Chart courtesy of www.StockCharts.com
While technical analysis matters, fundamentals should not be overlooked whatsoever either. One of the biggest reasons the EUR/USD pair could plunge further is due to the interest rate difference between the two currencies.
In the U.S., we recently heard that the Federal Reserve raised the federal funds rate. If we look at the direction in which interest rates are moving, they are expected to go much higher. If you look at the Federal Reserve’s projections, in the long run, the federal funds rate is expected to be above three percent, up from the current 0.5%. (Source: “Advance release of table 1 of the Summary of Economic Projections to be released with the FOMC minutes,” Board of Governors of the Federal Reserve System web site, last accessed December 21, 2015.)