The euro once again turned lower today on reports that Spanish banks are unable to borrow and a story in the Financial Times suggesting that Safe — the Chinese government investment fund at holds an estimated $620 billion in euroarea debt — is worried about its investments in Portugal, Italy, Ireland, Greece and Spain – the so-called PIIGS.
The euro tumbled on the news and has fallen below initial support at 1.2177. The cycle low of 1.2144 could be breached imminently and that would be a very bearish signal for EUR/USD.
The pattern that points to further losses is also a classic head and shoulders formation.
The neckline has already been breached and the negative outlook would be confirmed by a fall below 1.2144. The measured target of the head and shoulders is 1.1683, which dovetails nicely with the 2005 low of 1.1639.
Overall, the fundamental and technical reasons are in place to be short the euro. Sell any bounce.