According to the recent CFTC report, hedge funds and other speculators have now turned negative on the euro by around 10 billion dollars. Bears are chasing the price lower as the currency has moved around 4 to 5 cents over the last month. However, if we observe Chart 1, below, my view is that the euro has yet to decide on its longer term trend.
As we can clearly see, euro bulls have been bidding up the currency since June 2012 in what has been a slow and steady uptrend over the last two years. On the other hand, euro bears have pushed the currency lower every time it approached a long term downtrend line, dating back to the 2008 record highs, just shy of 1.60 per US dollar.
Chart 1: Euro currency bulls have been in charge over the last two years
So we are now building towards a major decision point. If the currency breaks its uptrend line, it will be a sign that bears are once again starting to dominate. On the other hand, if the euro manages to bounce in coming days and weeks, it will be respecting the uptrend still in progress.
Personally, I think it is looking more and more likely that eventually a breakdown will occur. Nevertheless, before I take any positions in the currency exchange rate markets, I will let the price break either direction first.