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Why I expect a 25% drop in the Euro!

by , 30 March 2022
Why I expect a 25% drop in the Euro!
The next time you travel to Europe, it might be very affordable.

You may actually be able to travel to the hotel of your choice, eat at any restaurant and enjoy the tourist attractions without hurting your pocket.

I'm in Greece right now for a few months and I've got myself a little place in the heart of Athens and I must say, all furniture, appliances, TV and other accessories are super cheap at the moment.

And I think things are about to get even cheaper.

In fact, I expect at least another 25% plunge for the Euro in the next few weeks.

Here's why.

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The euro is at its lowest price since 2020

This month, Russia unleashed the largest attack on a European state (Ukraine) since World War 2!

This resulted in thousands of people leaving their homes and preparing for a major battle.

Just to bring you up to date...

The damage so far is $119 billion property damage.

There have been over 16,000 deaths, 1,700 buildings have been destroyed, and the Russian Rouble has crashed to under 0.0093.

And this is having a major effect on Europe.

Some policymakers at the ECB (European Central Bank) have said the situation in Ukraine could cause the ECB to slow its exit from stimulus measures.

Then we have Russian forces which have seized Europe’s biggest nuclear power plant.

Almost, a week later and electricity and fuel prices in Europe soared.
This then led to the Eurozone’s inflation level hitting a record high of 5.8% last month.

Strategists also worry that with the rising energy and gas prices, this will hit Europe’s economic growth prospects.

And so, with the escalating Ukraine-Russia conflict, there is a domino effect on Europe, where the euro continues to fall against major currencies.

For one, the euro slid to its lowest price level in 21 months, against Britain’s pound.

It also dropped to a seven-year low against the Swiss franc.

We also saw the euro drop to its lowest level against the US dollar in 21 months as well as the South African rand.

And when the EUR/USD falls the EUR/ZAR falls with it… Take a look at the correlation between the two…

Note: The EUR/USD is the blue line with the price on the left. And the EUR/ZAR is the candle price on the right.

 
 

So clearly investors are leaving the euro as they are feeling more uncertain about the future with the war.

They are moving their money and investments into safe haven currencies like the US dollar, Yen, and Swiss franc.

Here’s what Amo Sahota, director at Klarity FX in San Francisco said:
"The most compelling story here is the flight to safety, which we've seen coming in ebbs and flows. It picked up overnight with the fire" (In Ukraine).
"That created a pop up in U.S. dollar across the board.
"The big losses have really been focused on European currencies in particular"


He also noted that economists could consider lowering their European growth forecasts.

As I mentioned before, the euro is not looking good against major currencies.

And when the euro falls against them, the rand tends to strengthen as I showed you in the chart above.

And looking at the chart below, I see a lot more downside to come for the Euro against the South African Rand.

This Inverse Cup and Handle is showing a 25.76% drop for the Euro

 
 

You’re looking at the daily price chart of the EUR/ZAR.

Since 18 November 2020, it has formed a major bearish (down) breakout pattern.
 
It’s called an Inverse Cup and Handle formation (shaded area).
 
This pattern resembles an upside down, Cup with a Handle and consists of three main parts:
 
Part #1: The cup (Big rounding bottom on the left side)
 
Part #2: The Handle (Small rounding bottom on the right side)
 
Part #3: The brim level (low level).
 
Last week, we saw the Inverse Cup and Handle pattern finally complete, and the price broke below the Brim level at R16.30.

Not only that but take a look at the moving averages.

The 200 moving average (Black line) is above the 50 moving average (Green line) which is above the 21 moving average (Blue line) which is above the 7 moving average (red line).

All you need to know is when you see this situation, it tells you the EUR/ZAR is in a continuous bear market.

And based on the factors I’ve mentioned today, it looks like we’re in for a lot more euro downside.
 
If we use the High-Low calculation approach, we’ll find the next price target for the EUR/ZAR.
 
Here's the calculation:
 
Price target = (High – Low) - Low
                  = (R20.50 – R16.30) – R16.30
                  = R12.10
 
This means we can expect the euro to drop 25.76% against the South African rand.  
 
Here are two ways I’ll profit from the euro crash
 
First, I can short (sell) the EUR/ZAR and hold it until it hits my price target at R12.10.
 
Second, I will be watching
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Why I expect a 25% drop in the Euro!
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