EUR/USD, GBP/USD Scalp Setups- Bearish Bias Remains Intact

The start of trading this week has been marked by a massive global risk sell-off as ongoing concerns over the debt crisis in Europe are coupled with the expected failure of the congressional supercommittee to reach consensus over how to achieve $1.2 trillion in cuts to government spending. Our euro scalp setup featured in last Thursday’s Scalp Report remains in play with minor adjustments made in our soft targets to more accurately reflect recent price action. We compliment this scalp with another look at the sterling which surprisingly, was the sharpest loser against the dollar an hour after the Sunday open. The medium-term outlook on both scalps remains weighted to the downside as thinned market conditions and a lack of confidence among investors continue to weigh on risk.

EUR/USD Scalp Setup

As noted last week, the euro did see a surge on Friday with the EUR/USD exchange rate testing topside targets just above our topside limit which was held at the 61.8% Fibonacci extension taken from the November 8th and 13th crests at 1.3577. The level could not hold however with the single currency closing the week just below 76.4% extension at 1.3523. Interim resistance holds here with a breach above short-term trendline resistance eying subsequent ceilings at 1.3550, 1.3577, and the 1.36-figure. A break above this level negates our bias with such a scenario eyeing topside targets at 1.3620 and 1.3660.

Interim support targets are held at 1.3495 backed by 1.3465, the 100% extension at 1.3435, and the 1.34-handle. A break below this level risks further losses for the single currency with subsequent break-targets seen at 1.3370 and 1.3345. An hourly average true range of 33.34 yields profit targets of 24-27pips depending on entry. Should ATRpull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that the scalp will not be active until a break below 1.3495 or a rebound off 1.3523 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move passed the topside limit at the 1.36-figure eyeing topside targets.

Key Thresholds

Upcoming Events

Event risk on the pair is limited over the next 24-hours with only the November consumer confidence survey on tap. Consensus estimates call for confidence to slide further with a read of -21.0, down from a previous print of -19.9. Unless the data misses by a substantial amount it’s unlikely the print will spark much volatility as markets remain fixated on the debt debate in Washington and ongoing developments out of the Euro zone.

GBP/USD Scalp Setup

The sterling kicked off the week as the weakest performer against the dollar in early Asia Pacific trade as investors flocked into the perceived safety of the greenback. Highlighting our setup is a Fibonacci extension taken from the November 13th and 18th crests with price action currently sitting on the 61.8% extension at 1.5640. A break below this level initiates the scalp with subsequent profit targets eyed at 1.5615, the 76.4% extension at 1.5580 and 1.5550. A break below this level risks substantial losses for the pound with extended break-targets held at 1.5510 and the 100% extension at 1.5485.

Topside resistance is eyed at 1.5665 with subsequent ceilings seen at the 50% extension at 1.5688, 1.5710, the 38.2% extension at 1.5735 and the 1.5765. A breach above the topside limit at 1.5795 negates our bias with such a scenario eyeing topside break-targets at 1.5845 and Friday’s high at 1.5890. An hourly average true range of 33.44 yields profit targets of 24-27pips depending on entry. Should ATR pull back dramatically, adjust profit targets as needed to ensure more feasible scalps.

*Note that short-scalps will not be active until a break below 1.5640 or a rebound off 1.5688 or subsequent resistance level with RSI conviction. We will remain flexible with our bias with a move above our topside limit at 1.5795 eyeing topside targets.

Key Thresholds

Upcoming Events

Event risk for the pound is also likely to be subdued until Wednesday’s BoE minutes where investors will be eyeing the MPC vote count as it pertains to the expansion of the central bank’s asset purchases. Highlighting tomorrow’s public finances figures will be the October net borrowing print with estimates calling for a read of £3.8 billion, down from a previous print of £11.4 billion. Although the data is widely expected to be a non-event, should the print come out lower than expected, the sterling may see a rebound as lower amounts of borrowing would suggest that the recently implemented austerity measures in the UK are successfully reducing the governments reliance on credit.

---Written by Michael Boutros, Currency Analyst with DailyFX.com

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