On a technical basis, there is no doubt that the bears have the upper hand in EUR/USD. The pair has consistently put in lower lows and lower highs since peaking at 1.40 back in May of last year, and any momentary pauses in the pair have eventually resolved to the downside, most recently in November/December and in February. In fact, the Q4 pause may provide a useful template for where EUR/USD could head next.
To me, avalanches have always been one of the most dramatic and terrifying of natural phenomena. In general, avalanches tend to occur after a seemingly small disturbance, such as new precipitation, animal movements or a large rock dislodging, but there are usually advance warning signs that an avalanche is more likely to occur.
This is the first sell signal on the British pound since the trend turned back to down last Friday. British had a nice corrective retracement for the past month before regaining its overall down trend. Notice when the 2 moving average crossed British had a big down day.
I noted one week ago that with the euro buying $1.10, the IB Probability Lab using prices for currency options derived a 5% chance of the unit sinking to parity by June and a 10% chance of arriving there by September.
The dollar hit multi-year highs against the euro and yen and emerging markets were under mounting pressure on Tuesday, as the prospect of the first rise in U.S. interest rates in almost a decade stoked global volatility.
Nearly two years ago, then-Fed Chairman Ben Bernanke (remember him?) suggested that the Federal Reserve was planning to gradually reduce the pace of its quantitative easing, a process that quickly became known as “tapering.”
Whether the Reserve Bank of Australia wished to keep its powder dry or whether it simply did not want to ease at back-to-back meetings, the impact was to drive higher the value of the Aussie dollar Tuesday and push down uncertainty in the forex options market.