The road not to take ...

TWO roads diverged in a yellow wood, 
And sorry I could not travel both 
And be one traveler, long I stood 
And looked down one as far as I could
To where it bent in the undergrowth
                  Robert Frost, 1875 - The Road Not Taken




That's how I currently feel about the USD/EUR development. The EUR got weak during the last weeks. Currently we are trading around 1.225 to 1.235 - long-time lows. The charts start to look really horrible, as any further fall takes out major support levels. Once we fall below 1.20 or even 1.18 there seems to be no stop. Only the all-time-lows at 0.85 would provide any support then

(see chart)

Which road will we take?

EURO falls to 0.85
There are several points that could lead to a sharp drop in the EURO. The European debt crisis is not solved so far. Crazy thing is: whatever news coming out of Europe, they can harm the EURO. A 'solution'  or 'kick of the can down the road' (QE in Europe, Euro bonds, EZB and its instruments supporting the PIGS-countries even stronger, ...) would for sure mean a weaker EURO. The German way of financial austerity could also mean a weaker EURO, as it could lead to mid term depression.

As long as you do look on the EURO only, I can hardly see a scenario that would lead to a strengthening of the currency. What good can French new politics do? Do we expect any positive surprise on German economic figures? Will the EZB raise interest rates?

EURO holds ground and rises afterwards
Once you step back a little, once you take a look at the whole picture - not the EURO only - CHANGE. US economic numbers are bad - the 'recovery' creates almost no jobs. We have no budget in the US since years. The US approaches the debt ceiling rapidly. Tax burden will jump up with the change of the year, costs of Obama-Care will hit the economy. These topics are all not in focus of the world media today. But they will become once the elections for the most powerful job in the world heat up.

Once the EURO is not looked at so closely and the attention moves to the US problems (which are as big as the European ones or even bigger), it could actually rise.

So which road to take?
Let me look down as far as I can. I can see some unfavorable, political developments in Europe, with the EUR dropping to 1.18 and then falling below 1.0 quick once the technical support is all gone. I think, from that point it would be more like a sudden, fast movement. Most likely, European banks would not intervene first. US would be pleased to see the USD move up and I guess the Japanes would also stand on the side-lines.
Given the EUR holds up for some weeks, the opposite could happen. With US problems in focus, the EUR could rise quickly to 1.40. Hm ....

Who says, we have to take a road here? Why not just open a camp, light a fire,  get defensive, prepare for any travelers passing by. And once - but only once - the charts tell us which road to take - do so!