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EUR/USD Slide Continues but EUR Weakness Elsewhere Questionable

EUR/USD Slide Continues but EUR Weakness Elsewhere Questionable

2014-08-21 11:00:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- EURUSD cracks to fresh yearly lows at 1.3241.

- USDCHF has resumed its move towards 0.9160/89.

- US Dollar strength in August shouldn't surprise - it's a seasonally strong month.

EURUSD and USDCHF are back in tandem, and while that mean a bit more EURUSD weakness as USDCHF tries for $0.9160, that doesn't mean that Euro has to weaken across the board. The trailing quarterly correlation (63 days, average month has 21 trading days) between EURUSD and USDCHF is -0.960; or +0.960 between EUR and CHF.

The EUR and CHF relationship is important to note because even though both currencies are showing a tendency for further losses against the US Dollar, they might not be elsewhere.

EURGBP's potential inverse head & shoulders bottoming pattern looks more valid in context of GBPCHF's head & shoulders topping formation; both point to British Pound weakness relative to the Euro and Swiss Franc.

EURJPY Daily Chart (February 2014 to Present)

EUR/USD Slide Continues but EUR Weakness Elsewhere Questionable

If EURJPY can clear ¥138.05, it will have broken out of 1) an expanding wedge since July 10 and 2) the downtrend encased by the May 13 and June 9 highs. Given the down move since the start of the year, a reasonable target in the short-term would around ¥139.30, where the descending TL from the December 27, 2013 and May 8, 2014 highs intersect at the end of next week.

See the technical video for considerations specifically for EURUSD, USDCHF, EURAUD, and EURGBP.

Read more: USD Breakout Led by EUR/USD, USD/JPY - Bull Flags in USD/CAD, USD/CHF

--- 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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