Still Hanging to Short-Term Constructive Euro Outlook; Oil Also Interesting
- Latest wave of downbeat news weighs on risk correlated assets
- Markets however still largely locked in some consolidation
- We remain upbeat and still look for Euro rally before weakness
- Oil chart looking highly compelling; could be buy opportunity soon
There is very little to talk about into Tuesday and markets seem to be locked in a holding pattern ahead of the EU Summit on Thursday and Friday. Still, if there is one direction in which markets have been aligning, it has certainly been in the risk off direction as any headlines that have surfaced over the past 24 hours have been negative. Moody’s downgrade of 28 Spanish banks, Merkel’s opposition to Eurobonds, Cyprus officially requesting a bailout and the Greek FinMin resignation have not helped to bolster risk appetite in any way, and this has resulted in some pullbacks in the Euro below 1.2500 and a sharp retreat in USD/JPY below 80.00. Overall however, we really haven’t moved that much, and we could just as easily see a reversal in market sentiment and renewed optimism on some unknown catalyst later today. For the time being, we remain on the optimistic and upbeat side, and will look for this optimism to help support the Euro back over 1.2585 and USD/JPY above 80.00 again. Still, if you are not currently in any positions, the best place seems to be on the sidelines. There is however one interesting trade that has jumped onto our radar screen and that is Oil.
We recently wrote a third quarter forecast for the commodity and it looks as though this market could soon find some formidable support ahead of some major upside back over $100 over the coming weeks and months. This is a market that has been under some intense pressure for the majority of the second quarter, with the price action resulting in some stretched medium-term technical studies. At this point however, the market is expected to find some formidable support between $65-75 and as such, our recommendation would be to look to take advantage of the stretched studies and build into a long position on a decline into the above mentioned range. There is some very good former resistance turned support from 2010 in the $65-75 area and ultimately, only a 2-week close back under $65 would negate our more constructive third quarter outlook and give reason for pause. Look for a push back towards $100 at some point over the coming months. At that point, we recommend booking profits on any rallies beyond $100 and standing aside.
EUR/USD: While our overall outlook remains grossly bearish, from here we still see room for short-term upside before a fresh lower top is sought out. Despite the latest pullback, the market still looks constructive in the short-term while above 1.2440. A closer look at the weekly chart still shows the pair putting in yet another weekly higher high and higher low. Nevertheless, a break back above 1.2750 will now be required to accelerate gains. Below 1.2440 negates.
USD/JPY: Some very constructive price action in recent sessions with the market clearing some critical short-term resistance by 79.80 and then breaking back above psychological barriers at 80.00. This now opens the door for a potential medium-term higher low in place by 77.65 ahead of the next major upside extension back towards and eventually above the 2012 highs by 84.20. Setbacks now expected to be well supported above 78.50.
GBP/USD: Despite some intraday pullbacks, the bullish correction since early June remains alive, and we still see room for additional upside beyond 1.5780 and towards 1.6000 over the coming days. Ultimately, any additional declines are expected to be well supported around 1.5500, while only back under 1.5450 would compromise the outlook.
USD/CHF: While we retain a broader bullish outlook for this pair, with the market seen establishing back above parity over the coming weeks, there still seems to be room for additional short-term declines while the market trends lower from the peak in early June. Ultimately, a break back over 0.9660 would be required to end the short-term bearish correction and open the door for broader bullish resumption. Until then, risks remain for a deeper pullback towards the 0.9200-0.9300 area.
--- Written by Joel Kruger, Technical Currency Strategist
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