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On Lightened Trade, Currencies Exposed to Intraday Price Swings

On Lightened Trade, Currencies Exposed to Intraday Price Swings

2011-12-22 06:57:00
Joel Kruger, Technical Strategist
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  • Markets could continue to see whipsaw trade into year end
  • Euro still open for rally towards 1.3300 over coming sessions
  • Euro crosses looking overextended and poised for bounce
  • UK GDP, Italian austerity package and batch of US data in focus

Although yesterday’s price action in the Euro was quite bearish, with the market unable to hold onto gains towards 1.3200 and sharply reversing course to close lower on the day back in the mid-1.3000’s, we would not give the developments too much consideration in the current market environment. All of the major players have abandoned their desks for the holidays and market volumes have dropped off dramatically. Technically, we still do not rule out the possibility for a Euro rally into year end, with the market well capable of pushing back into the 1.3300’s while still being confined to the underlying bearish trend. But our recommendation is to stay put on the sidelines for now and wait until normal market conditions return in early January.

In the interim, it could be worth keeping an eye on some interesting Euro cross rates which all seem to be overextended and potentially at risk for reversals. EUR/JPY has stalled out yet again by multi-year lows and ahead of key psychological barriers at 100.00, while EUR/AUD trades by +20 year lows and could also be looking to carve some form of a base. Meanwhile, EUR/GBP has been under some intense pressure in recent trade, and threatens a retest of its 2011 lows from early January.

Looking ahead, the Italian austerity package will head to the Senate for final vote, while on the economic calendar, Italian retail sales, and UK current account and GDP highlight the European docket. Things could pick up into the US with the final revisions to US Q3GDP due, along with initial jobless claims, Chicago Fed national activity index, leading indicators, the house price index and Michigan confidence. US equity futures and oil prices trade relatively flat, while gold looks to be rolling back over.

ECONOMIC CALENDAR

Currencies_Exposed_to_Wild_Intraday_Price_Swings_on_Lightened_Trade_body_Picture_5.png, On Lightened Trade, Currencies Exposed to Intraday Price Swings

TECHNICAL OUTLOOK

Currencies_Exposed_to_Wild_Intraday_Price_Swings_on_Lightened_Trade_body_eur.png, On Lightened Trade, Currencies Exposed to Intraday Price Swings

EUR/USD: The market has finally taken out the key October lows at 1.3145 to confirm a lower top by 1.3550 and open the next downside extension towards the 2011 lows from January at 1.2870. Daily studies are however looking a little stretched and at this point we could see some corrective action before the market resumes its downward trajectory. Look for any rallies to be well capped in the 1.3300 area from where the next lower top will be sought out.

Currencies_Exposed_to_Wild_Intraday_Price_Swings_on_Lightened_Trade_body_jpy2.png, On Lightened Trade, Currencies Exposed to Intraday Price Swings

USD/JPY:The market has managed to successfully hold above the bottom of the daily Ichimoku cloud to further strengthen our constructive outlook and we look for the formation of a inter-day higher low by 76.55 ahead of the next major upside extension back towards and eventually through the recent multi-day highs by 79.55. Ultimately, only a close back below the bottom of the Ichimoku cloud would negate outlook and give reason for pause, while a daily close back above 78.30 accelerates.

Currencies_Exposed_to_Wild_Intraday_Price_Swings_on_Lightened_Trade_body_gbp2.png, On Lightened Trade, Currencies Exposed to Intraday Price Swings

GBP/USD: Rallies have been very well capped ahead of 1.5800 and it looks as though a lower top has now been carved out by 1.5780 ahead of the next major downside extension back towards the October lows at 1.5270. Key support comes in by 1.5400 and a daily close below this level will be required to confirm bias and accelerate declines. Ultimately, only back above 1.5780 would negate bearish outlook and give reason for pause.

Currencies_Exposed_to_Wild_Intraday_Price_Swings_on_Lightened_Trade_body_swiss1.png, On Lightened Trade, Currencies Exposed to Intraday Price Swings

USD/CHF: The recent break above the critical October highs at 0.9315 is significant and now opens the door for the next major upside extension over the coming weeks back towards parity. A confirmed higher low is now in place by 0.9065 following the recent break over 0.9330, and next key resistance comes in by 0.9785. Ultimately, only back under 0.9065 would delay constructive outlook.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

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