EUR/USD, EUR/GBP Trends Firm; EUR/JPY, USD/CAD Test Breakout Levels
- Trend structure for EUR-pairs clear: watch 8-EMA and H4 MACD.
- USDCAD moves to February 24 swing high in symmetrical triangle.
- See the March forex seasonality report for trends in the QE-era.
On day two of the ECB's new QE program, the Euro has taken a spill right from the get-go of European trading. With German yields at the short-end of the curve trading below the interest rate corridor floor of -0.20% - the level under which the ECB will not purchase debt - it may be becoming clearer to traders that the ECB will have difficulty achieving its desired results from its QE program, including its rather optimistic growth and inflation forecasts for the next several years.
As the program has kicked off, several numbers have been floated as to how the ECB will go about finding ample supply of sovereign debt for its program. Bank of America/Merrill-Lynch recently estimated that due to foreign holdings of Euro-Zone debt, it will result in at least €10 billion/month of selling to repatriate (so to speak) those bonds. Indeed, the portfolio flow mechanism looks to be a major driver of Euro weakness over the coming months.
For now, as the QE program gets underway, the EUR-crosses have presented traders a clear trend in the short-term: with H4 MACD below the median line, price has sold off quickly upon to mean-reverting levels, such as the daily 5- and 8-EMAs. Until the nature of this relationship changes, the trend is quite strong in crosses like EURGBP and EURUSD, and there is little hope of calling a bottom.
We're also keeping an eye on EURJPY now, not just because of the EUR-complex; but due to the fact that USDJPY has bumped into its 2014 high around ¥122.00. Traders caught in long positions since early-December may find an ample opportunity to close formerly underwater positions at break-even (or at a small profit), resulting in a settling of price.
Lastly, USDCAD should very much be on everyone's radar as it approaches its own breakout level. The symmetrical triangle in place going back to February 11 has reached its first intermediate node at the February 24 swing high of C$1.2662. On the H4 timeframe, we're looking for closes through this level accompanied by MACD breaking out to new highs relative to the February 11 and February 24 peaks to confirm resumption of the uptrend that began last summer.
See the above video for technical considerations in EURUSD, EURGBP, EURJPY, and USDCAD.
--- Written by Christopher Vecchio, Currency Strategist
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