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Euro Crosses Mixed for Price Action and Fundamental Health

Euro Crosses Mixed for Price Action and Fundamental Health

2010-03-23 14:44:00
John Kicklighter, Chief Currency Strategist

After taking profit on my EURGBP and EURJPY positions recently, I have whittled my exposure to the euro down to exactly nill. The outlook for this single currency is highly uncertain and potentially very volatile. The dominant concern for the euro is the ongoing situation with Greece and the EU's efforts to develop a clear and actionable contingency plan should the member once again fall on hard times. Officials have done their best to present a face of confidence in the nation's efforts to reduce its deficits and the functioning of the market; but this stability is founded on decidedly unstable market conditions. Over the past month or so, investor sentiment has firmed; and in turn, financing costs improved for Greece. Should risk aversion pick up though, the focus will once again turn to those areas of the global financial market and economy that are still exposed. Given the consistent disagreement between important EU officials, it looks like there is little possibility that a meaningful solution will be found. Furthermore, the inability to rescue Greece leaves any other members that run into trouble in the future in a lurch. This is very dicouraging for the euro's long-term health.

When it comes to gauging potential euro trades, I am looking for those pairs that are clearly awaiting a meaningful development in underlying fundamentals for a clear trend in price action. Technically this translates into congestion patterns that are highly exposed to breakouts and have a high level of follow through. For some pairs (EURCHF, EURAUD and EURNZD), the potential for momentum lies only with one direction - the direction that does not align itself to fundamental risk. Therefore, I will steer clear of these. There is additional opportunity with EURJPY and EURGBP; but there is some ways to go before these two are once again preparing for a breakout. The best positioned pair happens also to be the most liquid. EURUSD is carving a consistent and broad range between 1.38 and 1.3450. A break through the floor of this pattern will signal entry for me. A stop and target will be established as the development becomes a little clearer.

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