Article / 26 May 2016 at 5:38 GMT

Fiddling with Greek debt makes long-term EURUSD outlook bearish

Managing Partner / Spotlight Group
United Kingdom
  • Fiddling by financial institutions will keep Greece afloat in a sea of debt
  • Fed speaker chatter suggests a rate hike is on the way in July, or even in June
  • These two factors mean the long-term outlook for the euro has taken a bearish turn
  • A "synthetic euro" chart shows how this currency would have fared decades ago

By Stephen Pope

On April 2 this year, I opened a short on EURUSD at 1.1365 (see EURUSD technicals suggest euro at pivot point). As of 1149 GMT on May 25, when the currency pair traded at 1.1151, this position was in profit by 1.92%.

All the initial trade objectives have been made and I am now minded to use this position so as to take a long-term bearish view on the euro.

One reason is that today we have received news that the Eurozone, the European Central Bank and the International Monetary Fund are likely to engage in another round of “financial fudge and fiddle” so as to keep Greece awash in sufficient liquidity to pay its debts. This is in short an exercise of Peter pays Paul, so Paul can pay Peter. Let’s face it Greek debt is slowly being migrated into becoming perpetual.


Bearish on the euro ...  the Eurozone, the ECB and the IMF are going to use financial fudging to prop up Greece, which will be burdened with an apparently perpetual debt. Photo: iStock

The other reason is that the tenor of the “Fed speak” is increasingly suggesting that a rate hike of Federal funds will come on July 27 if not even sooner, that is June 15. That has seen the EURUSD spot slip under the 50 day moving average on May 13 and the Dollar Index spot break above its 50 day moving average on May 18.

If you look deeper in the history of the euro's origins, you can use data bases to mimic a synthetic euro against the dollar on a quarterly basis back to the early 1970s.

Long Term EURUSD

Source: Spotlight Ideas. Create your own charts with SaxoTrader; click here to learn more. 

A descending triangle on the chart was completed by the decline in January 2015,and since then the currency pair has flatlined. This declining pattern has a target of 0.84, which equates to the 2001 low level of the EURUSD. 

The chart also displays a multi-decade trend line connecting back to the 1985 low. So the retreat in Q1, 2015 found support at this trend line, which has acted as a floor since then.

I look at the dichotomy between the US and Eurozone economies and sense that the near 30-month congestion is primed to see a break to the downside, and that a violation of the lower boundary of this congestion zone and the multi-decade trend line will result in a new value crisis in the forex values of the euro.

Five year EURUSD chart
Source: Spotlight Ideas

Management and risk

Parameters: EURUSD Already short at 1.1365, but would sell again.

Entry: Sell at 1.1151, 1149 GMT

Targets: 1.0500 … 0.9721 … 0.9239 … 0.8850

Stop: 1.2200

Time horizon:   Long term

– Edited by Robert Ryan

For more on forex, click here.

Stephen Pope is managing partner at Spotlight Ideas. Follow Stephen or post your comment below to engage with Saxo Bank's social trading platfor


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