Growing expectations for ECB easing saw the euro/dollar decline decisively below $1.34 in August, marking a significant downtrend confirmation. The $1.34 level has acted as a long-term support and resistance, defining price activity starting in December 2011. The pair has remained in a broad trading band since September 2012; $1.34 is in the middle of this band.
The upper edge of the trading band is near $1.40, a level defined by support and resistance activity in 2010 and 2011. Starting in September 2013 the euro/dollar traded in the upper section of the trading band between $1.34 and $1.40. In May 2014 it briefly touched the top of the trading band and then started a new prolonged downtrend.
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The width of the upper section of the trading band is projected downwards to set the lower edge of the trading band near $1.28. This level provided support in November 2012, and March, May and July 2013. This is a significant and well-tested support level.
There is minor support and resistance near $1.31 that helps define the development of the downtrend.
Price activity between $1.34 and $1.40 had relatively low volatility, while activity between $1.28 and $1.34 had more rapid volatility moves. This suggests that a fall below the minor support near $1.31 can move rapidly to test lower support near $1.28. Traders will be ready to add to short trades when the euro/dollar moves below $1.31.