The EURUSD exchange rate is falling as economic and political risks in the Eurozone increase. Recent events, including uncertainty after the Italian elections, are pushing the Euro lower against the US Dollar. The Eurozone is expected to face a recession in 2013, with growth not anticipated before 2014, making a cut in the Euro interest rate likely.

Technical Analysis on EUR/USD Using TCI+ Indicator

The Trading Center Indicator (TCI) is a technical analysis tool that can be applied to any financial market. In this analysis, a new version called TCI+ is introduced, designed specifically for the Forex market. Two EUR/USD charts follow, covering the same period from January 1999 to February 2013. (» Trading Center Indicator)

Chart: EUR/USD 1999-2013

Forex Technical Analysis Using TCI+

1. In the upper part of the graph, there is a Line Chart (Blue line = closing prices) and the 160-day Moving Average (Red line = 160MA). It is clear that whenever the EUR/USD moves above the 160-day Moving Average, it enters a Bull Market, and when it falls below, it enters a Bear Market. On February 25, 2013, the 160-day Moving Average for EUR/USD is 1.2917.

2. The lower part of the graph shows the TCI+ chart, which indicates the mid-term market condition of EUR/USD. We can see that TCI+ has signaled strong movements in the past when it dropped below -4% or -5%. On February 25, 2013, TCI+ is at -2.82%.

Forex Forecast on EUR/USD

The EUR/USD exchange rate may fall to reach the 160-day Moving Average at 1.2917. At this level, TCI+ is expected to drop below -4%, signaling a possible rebound. Between 1.2910 and 1.2920, we should expect a strong EUR/USD turnaround.

The Role of Central Banks in 2013

• The Unusual Monetary Policy of the European Central Bank

The current ECB monetary policy on Euro interest rates goes against over 100 years of macroeconomic theory. Unemployment is rising quickly, money supply is limited, and the European economy is shrinking. Despite these facts, the ECB claims inflation concerns and refuses to cut Euro rates. This policy contradicts past macroeconomic experience and cannot last much longer. Euro interest rates need to fall.

• FED Monetary Policy in 2013

On the other hand, as mentioned in a previous analysis (»Gold Price Forecast 2013), 2013 will be crucial for the FED’s long-term monetary policy. If US inflation rises above 2.0% or unemployment falls below 6.5%, the FED is expected to raise US interest rates aggressively. Given the Eurozone’s economic problems, this could push the EUR/USD exchange rate down sharply, possibly to 1.2000.

□ Giorgos Protonotarios, for Trading Center (February, 26th 2013)

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