Euro Taking Another Leg Down

Into the European close, the euro has broken down further. A break below $1.3835 warns of the increased risk of a return to last week's low near $1.3700. The unwinding of long euro cross positions, especially against sterling seems to be a contributing factor. Yet, given the euro's strong gains against Swedish krona, Swiss francs some eastern and central European currencies, there is more than cross rate developments at work. The inability of the euro to maintain its move above $1.40 yesterday has soured the mood among dollar bears.

In a post last week, I noted that the 5- and 20-day moving averages for sterling crossed in a dollar positive direction and the Swiss franc's average were about to. They crossed yesterday. The euro's averages have not crossed, but they could in the coming days. Momentum traders and model traders are likely being forced to the sidelines. The euro has not closed once below its 20-day moving average since Sept 10. That average comes in near $1.3875 today.