Euro Hold Above 1.3745 on Thursday Will Open Fresh Upside Extension
Wednesday’s break above 1.3745 in EUR/USD is significant, with the market accelerating back above the previous right shoulder of a head & shoulders top formation to negate short-term bearish price action and put the pressure back on key topside resistance by 1.3860. The gains in the Euro have set the tone for the rest of the currency market, with most of the other major currencies following the lead and posting gains against the buck.
We have however been seeing a relative underperformance in the commodity currencies despite a surge in commodity prices led by a massive oil move, with risk aversion themes on geopolitical threats and lower global equity prices detracting from the lure of the higher yielding commodity bloc. Also seen weighing on the antipodeans overnight has been a much weaker than expected Aussie Capex showing, and ongoing concerns over the costs of rebuilding Christchurch following the devastating earthquake this week. Meanwhile, the safe-haven majors have been very well bid, with USD/CHF breaking to fresh record lows below 0.9300, and USD/JPY breaking back below 82.00 to threaten a potential retest of its record lows from 1995 down by 79.75.
Looking ahead, German GDP (0.4% expected) is due out at 7:00GMT, followed by Swiss employment data (1.2% expected) at 8:15GMT. Eurozone confidence readings are then out at 10:00GMT, with UK CBI reported sales (28 expected) rounding things out for the session at 11:00GMT. US equity futures have recovered a bit, while oil continues to surge (just under $100). Gold consolidates its latest moves.
EUR/USD:The latest sharp upside reversal certainly threatens short-term bearish prospects, with the market now looking to establish back above 1.3745 (previous right shoulder). Next key resistance comes in by 1.3860 and a break and close above this level will completely negate bearish outlook and open the door for a more significant rally over the coming sessions towards 1.4000. However, inability to establish above 1.3745, will once again put the focus back on the downside and expose a retest of 1.3425 further down. In the interim, we remain sidelined and will wait for a clearer signal.
USD/JPY: The market continues to remain extremely well bid on dips, with the latest surge back above 83.00 really encouraging longer-term recovery prospects and opening the door for a potential break of key topside resistance by 84.50 over the coming days. Longer-term cyclical studies certainly suggest that the market could be poised for a major bullish reversal and we would look for a break and weekly close back above 84.50 to help confirm outlook. Any additional dips from here should be well supported above 82.00 on a close basis, while only a break and close back below 82.00 would concern.
GBP/USD: The market largely remains locked in some consolidation after continuously stalling out by and ahead of key resistance at 1.6300. From here, it is difficult to establish a clear directional bias and we will need to see a sustained break above 1.6300 or back below 1.6100 for additional clarity.
USD/CHF: The latest break to fresh record lows below 0.9300 is certainly concerning and threatens our longer-term recovery prospects. Still, we do not see setbacks extending much further and continue to favor the formation of some form of a material base over the coming weeks in favor of an eventual break back above parity. From here, big figures become key support as we are in unchartered territory, while a break back above 0.9400 would be required to relieve immediate downside pressures.
Written by Joel Kruger, Technical Currency Strategist
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