Euro Remains Key Market to Watch Over Coming Sessions
Slovakia’s rejection of EFSF expansion has been weighing on sentiment over the past few sessions, but with a re-vote expected, and the PM offering resignation in exchange for support, we could still see passage of the bill. The Euro has once again failed to clear key resistance by 1.3700 and inability to do so will be significant, suggesting that risk correlated markets are still very much exposed to further depreciation. However, the longer the market can hold above 1.3600 and consolidate, the greater the chance that we will eventually see a break through 1.3700 to open a more significant risk rally. This will translate into higher currencies and equities and a lower US Dollar. As such, as we mentioned in our report from Tuesday, we have reached a critical short-term inflection point, and we will watch the Euro closely for clearer directional bias and insight into the broader global macro markets.
EUR/USD: Setbacks have stalled out for now by 1.3145 with the market in search of a fresh lower ahead of the next major downside extension below 1.3000. Overall, our outlook remains quite bearish and we continue to project deeper setbacks into the lower 1.2000’s over the coming weeks. Ultimately, only a daily close back above 1.3690 would delay outlook and give reason for pause.
USD/JPY:Has been locked in an intense consolidation in the 76.00’s over the past several weeks, since breaking to fresh record lows by 75.95, and while we would not rule out the possibility for a continuation of the downtrend, any additional declines are seen as limited. Longer-term technical studies are looking stretched and we anticipate the formation of a major base in favor of an intense upside reversal. Look for a break back above the August highs at 80.25 to confirm outlook and accelerate. In the interim, any dips towards 75.00 are viewed as an excellent and compelling buy opportunity.
GBP/USD: Although the overall structure remains bearish, setbacks have been very well supported around the 1.5300 area and the market is currently in the process of consolidating the recent declines. We would however warn of the potential formation of a double bottom on the daily chart, with a break and daily close back above the neckline at 1.5715 to confirm the formation and expose a more significant rally back above 1.6000. However, inability to establish above 1.5715 will keep the bearish structure intact and open the door for a bearish resumption back towards and below the recent range lows at 1.5270.
USD/CHF: Although daily studies are showing overbought and warn of the potential for a short-term corrective pullback, the recent daily close back above the 200-Day SMA is significant and now opens the door for the next upside extension towards 0.9500 further up. Medium-term and longer-term studies still show plenty of room for upside ahead, while the short-term outlook also remains constructive above 0.8645. Ultimately, only back under 0.8645 delays short-term outlook and would open the door for a more sizeable corrective decline. Still, even at that point, buying into dips would be the preferred strategy.
--- Written by Joel Kruger, Technical Currency Strategist
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