When we last examined EURUSD [see: Jan 23 update] it had just reached our Dec 3 target at the .618 Fib level of 1.12.

We were looking for a bounce, but its magnitude was a big question mark.

The degree of any technical bounce is a bit tricky.  It would take a lot of short covering to effect a meaningful retracement.  After all, the ECB is officially trashing the euro to the tune of 1 trillion bucks.

The widely held expectation is that the Fed will “soon” be raising US interest rates, and therefore strengthening the USD — a viewpoint we don’t share, by the way.  If we’re right, and US rates remain low or trend even lower, this will put pressure on the dollar and, in return, strengthen EURUSD.

We speculated about whether our next downside target of .9898 might not arrive until later in the year, and left readers with the admonition:

Keep an eye on this critical support here at 1.1210.

That support has since been crushed underfoot by the thundering herd scrambling for the exits.  The bounce off the .618 never got above 1.1533 and lasted only 22 sessions.

What’s worse, it now’s now in danger of losing all support all-together.  continued for members...The daily RSI is exhibiting some positive divergence…

…but, not so the weekly RSI — which has never been lower in the history of the union.

At its current rate of descent, EURUSD could reach our .9898 target (5.3% away) in a matter of days.

Complicating matters is the yen carry trade.  The USDJPY has broken through resistance (cheaper yen, stronger dollar) in order to keep equities afloat.  This hardly benefits the euro, which is already under attack by those investors who aren’t too keen on paying interest to Germany, France, Finland, Belgium, Austria, Slovakia or the Netherlands (the NIRP’ers, so far) to hold their money.

To be continued…