The One Chart to Watch For The Next Euro Leg Lower: Analysis

The first signs of further euro weakness will come from any strengthening of inverse correlation between euro/dollar and European equities, as the common currency settles into a humdrum range after a sharp decline following European Central Bank President Mario Draghi’s fresh stimulus comments, Bloomberg strategist Vassilis Karamanis writes.

Real money investors (pension funds, asset managers, insurance companies among others) could be a catalyst for euro to test technical support near 1.08 versus the dollar, rather than the U.S. Federal Reserve. With the Federal Open Market Committee meeting ending today, Chair Janet Yellen isn’t expected to hugely deviate from her recent rhetoric, and will probably maintain possibility of a liftoff in 2015. A more dovish than expected announcement could see the dollar paring even more gains and test 1.1242, the fifty percent retreat of its latest rally versus the euro. ECB’s Draghi won’t reveal his stimulus cards until at least the next ECB meeting, which is five weeks away; that means monetary policy divergence theme won’t change for some time.