Euro-to-Dollar: Commerzbank Sees Slide Back Down Towards 1.2165

- The EUR/USD pair is showing further negative warning signs

- Bears attempting to breach 3-month trendline

- 1.2165 targeted if they are successful

© European Central Bank

The EUR/USD exchange rate is showing further negative early warning signs which suggest more downside for the pair.

The exchange rate has inched lower over recent sessions and is now starting to pierce below a minor trendline which has tracked the market's rise since December 2017 - trendlines are drawn on charts by technical analysts to highlight the trend (see below).

The weakness coincides with the countdown to the next policy meeting of the US central bank, the Federal Reserve (Fed), this evening at 18.00 GMT. The Fed is tasked with managing inflation and the Dollar's exchange rate (amongst other things) and the weakness in EUR/USD is a reflection of the markets improved outlook for the Dollar, due to higher inflation expectations and rising interest rates, which in turn attract greater inflows of foreign capital.

In the chart below the trendline under 'attack' is the red line connecting the December and late February trough lows.

If the exchange rate can successfully break below the trendline, perhaps by breaking back below yesterday's 1.2239 lows, it will probably lead to a more volatile follow-through down, to the next support level, at the longer-term, 11-month, trendline below.

"EUR/USD has eroded the three-month support line at 1.2265, this guards the more important 1.2165/55 area. This is made up of the mid-January and current March lows and the 2017-2018 uptrend," says Karen Jones, analyst at Commerzbank.

In many ways, the 3-month trendline presents the prelude to the main 'battle' at the '2017-2018 uptrend' line in the mid 1.21s. A break below that would really turn the tables on Euro bulls and make a great case for the 1.2556 February highs being a major top, and therefore a reversal in the primary trend.

Commerzbank's bearish forecast would be proven wrong on a break above 1.2651 and the very long-term trendline drawn from the 2008 highs.

We would caution bearish investors to remain hold back from betting on further downside until the exchnage rate breaks below the 2017-18 trendline.

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