As we noted first thing this morning, and showed again in the daily summary, there was a furious defense of the EURUSD support at just below 1.05, a level it briefly breached overnight before a massive buying storm/short squeeze was unleashed. Why the defense, and why is 1.05 (and just under) so important? As it turns out, this is perhaps the most important level for the EURUSD, more important to chartists and technicians than even parity. SocGen's Albert Edwards explains why: Although the market seems obsessed with the euro/dollar parity, SG's Technical Analysis guru Stephanie Aymes stresses that it is the $1.05/1.04 level that is more important, being the lower limit of the EUR/USD?s massive upward channel (see chart below). Stephanie argues that the move since last summer has been relentless and is very similar to the one seen in the late 1990s. She suspects that a break below $1.05/1.04 will confirm that the ongoing move is not a correction of the upmove since 2000, but a much larger down move. What happens if 1.05 is indeed solidly breached to the downside? In such scenario Stephanie says the EUR/USD will achieve parity, but this may well be just a temporary support before the downleg extends towards $0.98/0.96 - and even perhaps towards the lows of $0.84/0.82 reached in 2000. One can be confident that should EURUSD 0.82 hit, that at that point not only the S&P 500 will be screaming, but all of Congress, as the corporations who control it will be very, very angry. And since the support level is so very critical, don't bet that it will be breached that easily: The euro though may need to pause at this stage with technical indicators obscenely oversold ? e.g. both daily and weekly RSIs are down at only 15. In addition, speculators have been heavily short the euro (on the CFTC data) and having benefited from this move, a lengthy period of consolidation may now be necessary before the key 1.05/04 support is taken out. If Edwards is right, where will the USD bulls focus their attention next, and which USD pair will go parabolic next? It may very well be the original pinata: the Yen. Keep an eye on the yen. Euro consolidation at current levels may pass the devaluation baton back to the Japanese. And let’s not pretend that back in November we didn’t make a bold forecast that the yen would decline to Y145/$ by end-March. We may be running out of time for that, but recent savage moves in other dollar crosses should warn investors that a rapid move to Y145 on a clear break of Y122 is entirely plausible. If this happens then keep an eye on the rising euro trade-weighted index (during the yen?s consolidation the ?/yen slipped from Y150 to Y128 currently ? the lowest level since August 2013.) It is unclear if the JPY will be the next EUR. One thing isas long as the Fed pretends it can continue pushing the USD higher with implicit threats of a rate hike, the worse the US macro economy (already at the worst start to a year since Lehman), and the lower US corporate earnings will be before the Fed too gets a tap on the shoulder from its real shareholders.