Hello and welcome to CantosCharts. My name is Simon Derrick and I'm the Chief Currency Strategist at BNY Mellon.

Yesterday we were looking at sterling and we spent a lot of time looking at euro/sterling in particular. Today I want to focus our attention rather more on euro itself, a currency that has come an awful long way over the course of the last decade. Those with long memories will recall that in 2000/2001 the euro was languishing around 80 to 85 against the dollar. Since then it has made steady gains reaching a high of 160 back in the summer of 2008 and getting back towards the 150 level in the latter part of last year.

However, we do believe that there are strong signals starting to emerge that perhaps this long-term uptrend in the euro may be running into trouble.

Certainly once again, much like yesterday when we were looking at euro/sterling, we have to highlight a very clear decline in momentum on our very long-term indicators. In this case, once again, the 14-week RSI.

More importantly, we have to point out that when we were looking at the euro highs from last year, they fell significantly short of the peak that was seen in 2008.

From a purely technical basis, this is usually a classic indicator that we're at a change of trend. And surprise, surprise, if we look at our very long-term chart, actually, a very well defined reversal pattern, one that's classically used by many chartists, is starting to emerge when we look at this big picture chart.

Here, for example, if we look back to 2004/2005, we can argue that this is the left shoulder of a large head and shoulders - a classic reversal pattern.

2008 becomes the head of that pattern and the peak that we saw last year at 150 becomes the right shoulder. The neckline of that head and shoulders incidentally comes in somewhere around about 130 and it really takes a break at that level to indicate that the reversal is in place.

The important thing about this though is that it signals a long-term move. We've already come from 160 to the mid 130s. A break at 130 would certainly indicate a move well below 110 and possibly towards parity.

What's interesting is that this isn't the only indicator that we are in potentially a significant downtrend for the euro. One of the things that we do at BNY Mellon is we look at volume and as the largest asset servicing provider in the world with $24 trillion worth of assets in the vaults, one of the things we like to do is see where the volume is going.

This chart shows volumes of euro selling over the course of the last two years. During the height of the crisis in 2008, as you would have expected, solid steady selling of euros.

What's interesting, looking at this chart, is really how light the buying was through the course of 2009 during that rally that took us all the way from the mid to low 120s all the way up to 150.

But the key point is look at the pick up in volume as the downtrend starts to re-emerge. If volume confirms trend, which is a classic rule for Dow Theory, then here we have the perfect example of that taking place.

The heavy selling comes every time the euro is heading lower and on that basis, we would again argue that this is very much a long-term reversal of the trend.

Interestingly, we can also even identify quite what aspects of euro economy is starting to turn this around. If we look at our volume charts for the fixed income markets for euro, and in particular this is our chart for Greek bonds over the last two years. And low and behold, almost exactly the same pattern that we saw in the euro starts to emerge. Heavy selling in 2008, moderate buying in 2009 and heavy selling starting to emerge once again. That makes perfect sense to us.

As far as we're concerned, nobody over the course of the last decade brought the euro because of the high yields available or because of the out-performance of the eurozone economy. They bought it because it was a credible alternative to the dollar as a reserve currency and that money was therefore largely parked in the debt markets and in particular, in the sovereign debt markets in Europe.

Therefore, if there is a reversal of trend taking place, we would also expect it to show up in those underlying asset markets and here, sure enough, exactly that signal starting to emerge.

Tomorrow we're going to move on and we're going to start looking a little bit at the opposite of the world and one of the drivers of so much of the last decade reserve moves and reserve diversification and that's China. Thank you very much.