The EURUSD has broken below the trendline that is drawn off of April and September lows and is now testing potential parallel channel support.  With the pair testing support, expect a bounce.  Bearish risk is now 1.4865 and potential resistance levels are 1.4680, 1.4730 and 1.4765 (61.8% Fibonacci).  I am placing an order to short at 1.4765 with a stop above 1.4865.  The target is 1.3750 (former 4th wave on one less degrree).       

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I'd like to cover half of my EURUSD short at this stage and let the other half ride, locking in profit but not taking myself out of the trade too early. I've likewised halved my short position on EURJPY and yesterday tightened risk on both the EURUSD and EURJPY shorts. At this point let's see how far they can go. I think EURUSD 1.45 is a realistic ST target, while a re-test of 131 seems possible on the EURJPY.

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Investors have throttled back on their 'high-yield' exposure this morning and subsequently bolstered the dollar in the process. It would seem the RBA's rate decision would be an isolated, fundamental event; but in fact, it stands as the benchmark for how bullish the outlook could be. And, though the central bank would indeed hike, the commentary that followed the decision raised doubt that the authority would maintain a consistently hawkish bias. This knocks speculative down a peg as it shows the the most aggressive policy group is still limited by economics; and it also reminds us that most other central banks are on pause for the indefinite future. Without rising interest rates and trimming stimulus, market rates will remain inordinately low.

Naturally, the loose policy has its positive impact for some asset classes and increases the amount of cash that can be used for investment; but capital has already flooded into the markets and the possibilities for further gains are limited. This is a complex scenario; but nonetheless it is one that defines the future of general market sentiment. Applying this backdrop to the EURUSD break below 1.4675 this morning (which is where the rising trend from March's lows and the 50-day SMA was currently residing), we are looking at a major technical break. However, does the fundamental picture support such a meaningful reversal? That is debatable. I have been medium-term dollar bullish for some time now; but I have not been willing to hold a position on this conviction until there is a clear (bearish) reversal in risk appetite or change in the dollar's relationship to underlying sentiment. If we serious selling pressure for equities and commodities develop during today's or tomorrow's (there can be some time before a true drive is fueld) US market, I will look for a short EURUSD position. If my conditions are met, I will look for entry near the breakpoint of 1.4675 and I will place a stop above the range highs 1.4850 - naturally this requires position size adjustment to control notional risk. As this could have the makings of a new trend, my first target will be set near 1.4225.

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A top in EURUSD is on the verge of seeing confirmation: recent highs above 1.50 are divergent with momentum indicators, the weekly chart is showing a bearish engulfing, and the final piece of the puzzle is nearly in place with a break below rising trend line support established from the March lows (now at 1.4733). I will look for a daily close above this level and enter short initially targeting near 1.4460.

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My short EUR/USD trade was triggered last week with a break below the 20-Day SMA, today we saw my initial target of the 50-Day SMA hit at 1.4658. Therefore, I have taken some profits and moved my stop on the remaining positions to break even. There remains downside potential but with the FOMC and ECB policy meetings ahead there is significant uncertainty surrounding the pair’s direction. Therefore, I will remain cautious and may look to close out the position before the said event risk. However, a break below the 50-Day SMA does open the door for a test of the 100-Day SMA at Potential hints at tightening from either central bank could generate support for their currency, but neither is expected have a hawkish tone to their comments.

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Following up with the EUR/GBP sell recommendation from the previous week, the pair failed to trigger the short-entry I had at 0.9180, the 20-Day SMA on 10/27, and I ended up missing the drop to 0.8912 towards the end of the previous week. However, as the Bank of England and the European Central Bank are scheduled to hold their policy meeting on Thursday, Cable and euro may continue to trend sideways over the next 48 hours of trading, and I will sit on the sidelines for the time being as investors weigh the outlook for future policy. However, as the European Union forecasts GDP in the U.K. to outpace growth in the euro-region, we may see the euro-pound continue to retrace the advance from August as economic conditions improve.

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