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This is why the euro is headed down

Talking Numbers

This is why the euro is headed down

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This is why the euro is headed down

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The euro is now at its lowest level in nearly a year. And with talk of the European Central Bank ripping a page out of the Federal Reserve’s playbook, a cheaper euro could be on its way.

Currency traders are buzzing about the ECB potentially getting into the asset purchasing business similar to what the Fed has been doing for the past few years. By buying such things as government bonds, added euros into the economy would be expected to stimulate Europe’s fragile economy. ECB president Mario Draghi recently said the bank was prepared to use “all the available instruments” and “adjust our policy stance further.

(Read: Euro stumbles on Draghi dovishness)

According to Gina Sanchez, founder of Chantico Global, that means the euro will get weaker versus the U.S. dollar.

“Mario Draghi’s comments are significant in that he really in his latest comments opens the door for large-scale asset purchases and potentially quantitative easing,” said Sanchez, a CNBC contributor. “That’s something that the Europeans were at one point in time loathe to do. So I do think that’s important.”

The European Union’s GDP grew by just 0.7 percent in the second quarter of 2014 while its unemployment remains above 10 percent. “The continued weakness there, if it actually supports a move by Draghi,” Sanchezsaid, “would suggest a lower euro.”

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Mark Newton, chief technical analyst at Greywolf Execution Partners, is also bearish on the euro. He sees the currency breaking below an uptrend line that originally began in the summer of 2012.

(Watch: Europe closes higher on Draghi, Wall Street gains)

“We broke a two-year trend line, very similar to what we saw in 2008 and 2011,” Newtonsaid. “This should put continued pressure on the euro.”

And while the euro just traded below $1.32 for the first time this year, Newton sees it potentially breaking beneath significant levels by September. However, there may be some decent, albeit temporary, support below.

“If we get down near $1.31 or even $1.3025,” Newtonsaid, “that should be a decent area to find at least temporary support and you could see a bounce from there. But the broader picture is still quite bearish.”

The technicals mirror the fundamentals, according to Newton. “This supports the macro view that we’ve seen weakness in Europe and U.S. having stronger signs of growth,” he said. “It also supports the macro view that the euro should still move lower versus the dollar in the weeks ahead.”

To see the full discussion on the euro, with Sanchez on the fundamentals and Newton on the technicals, watch the above video.

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