EUR/USD Struggles as France’s Le Pen Pledges to Replace Euro

2017-02-06 16:02:00

Talking Points:

- USD/JPY Tests Channel Support; Continues to Track Risk Sentiment Following FOMC Meeting.

- EUR/USD Struggles as France’s Le Pen Pledges to Replace Euro.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	112.38	112.78	111.99	6	79

USD/JPY Daily

Chart - Created Using Trading View

The Japanese Yen outperforms against its major counterparts as risk sentiment wanes, with a closing price below the Fibonacci overlap around 112.40 (61.8% retracement) to 112.50 (38.2% retracement) raising the risk for a further decline in the exchange rate especially as the Relative Strength Index (RSI) preserves the bearish trend carried over from December; nevertheless, the dollar-yen may hold channel support as the pair continues to operate within a broader bull-flag formation, and the longer-term outlook for USD/JPY remains constructive as Fed Fund Futures highlight a greater than 60% probability for a June rate-hike.
However, the greenback remains at risk of facing near-term headwinds as market participants scale back bets for a March rate-hike following the Federal Open Market Committee’s (FOMC) first interest rate decision for 2017, and risk sentiment may continue to influence the exchange rate over the remainder of the month as Chair Janet Yellen and Co. appear to be in no rush to implement higher borrowing-costs; may see Fed officials try to buy more time at the next rate decision on March 15 as the central bank argues ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.’
After making numerous failed attempts to break below 112.40 (61.8% retracement) to 112.50 (38.2% retracement), a closing price below the Fibonacci overlap may open up the next downside target around 111.60 (38.2% retracement) followed by 110.20 (50% retracement).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
EUR/USD	1.0734	1.0802	1.0706	49	96

EUR/USD Daily

Chart - Created Using Trading View

The EUR/USD advance from earlier this year appears to be losing steam, with the string of failed attempts to test the December high (1.0873) raising the risk for a continuation of the long-term bear trend especially as price & RSI retain the downward trends carried over from 2016; may see a bearish trigger in the momentum indicator as it appears to be diverging with price and approaches trendline support.
With French Presidential candidate Marine Le Pen laying out plans to replace the Euro with a basket of new national currencies, the push for disintegration may put increased pressure on the European Central Bank (ECB) to further support the monetary union especially as Greece struggles to secure its next bailout payment; the elections in France (April) and Germany (September) may influence the single-currency over the coming months amid the uncertainty surrounding the fate of the euro-area.
With the broader outlook tilted to the downside, a break/close back below 1.0660 (50% expansion) to 1.0680 (78.6% expansion) accompanied by a bearish RSI trigger may open up the next downside region of interest around 1.0600 (23.6% expansion) followed by 1.0470 (38.2% expansion) to 1.0500 (50% expansion).

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The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since January 4, with sentiment hitting an extreme reading of -2.66 back in August, while traders have been net-long USD/JPY since January 30.
EUR/USD SSI sits at -1.29 as 44% of traders are long, with short positions 7.7% higher from the previous week, while open interest stands 8.7% higher against the 30-day average.
USD/JPY SSI sits at +1.86 as 65% of traders are long, with long positions 25.4% higher from last week, while open interest stands 7.8% above the monthly average.
The jump in retail USD/JPY longs suggests the crowd is buying the pair around near-term support as they anticipate range-bound conditions for the coming days.

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