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Most EUR-crosses in Trouble if EUR/JPY Under 136.20- Which One Isn't?

Most EUR-crosses in Trouble if EUR/JPY Under 136.20- Which One Isn't?

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- EURJPY, EURUSD look to extend recent downside pivots.

- EURCAD may be a long candidate above 1.4660.

- August forex seasonality in QE era supports a stronger US Dollar.

Both EURJPY and EURUSD have started to slip towards major support levels. In a sense, both pairs' dives are Euro-centric: more weak economic data out of the Euro-Zone compounded by fears of protracted conflict in Eastern Europe. The impact is not limited to FX: the German DAX has fallen -9.90% (10050.98 to 9055.57) since its all-time high on June 20.

EURUSD remains on track to test the November 2013 lows (after the "surprise" ECB rate cut) near $1.3295, having just lost and set new weekly, monthly, and yearly lows under $1.3358. Beyond Euro-centric issues, EURUSD is being weighed down by several strongUS economic dataprints in a row.

Considering that EURJPY captures the 'risk averse' perspective in FX thanks to the Yen component, we'd be truly concerned for the EUR-complex if EURJPY were able to clear its February 2014 swing low near ¥136.22. The downtrend from the May 13, June 9, and July 3 highs remains in place; a move through ¥136.22 should see price down to ¥135.50 quickly (¥134.10 next support).

Positioning suggests that we need to be on guard for a short covering rally in the Euro, however. Non-commercials/speculators have increased net-short positions (108K contracts) to their highest levels since the week ended August 21, 2012 (124K contracts).

If there is a short covering rally, EURCAD may be primed to run higher. EURCAD may be setting a double bottom between C$1.4440 and 1.4660, calling for a move to C$1.4880. Note that daily MACD is close to moving above the zero line for the first time since April 28.

See the video above for the technical considerations of EURJPY, EURUSD, and EURCAD.

Read more: EUR/USD, USD/CHF Flag Before Next Move - GBP/CAD Up Next

--- Written by Christopher Vecchio, Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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