EUR/USD Sell Recommendation Issued at 1.4315 for Tuesday
Volatility in the early week remains quite subdued as most of the major currencies continue to consolidate their respective moves from the previous week. We have however been seeing some offers emerge in the Yen, with USD/JPY breaking back above 81.00 on stop buying and M&A related activity. In Asia, the RBA Minutes were released and failed to indicate any need for an immediate rate hike at the upcoming meeting. This initially opened some mild Aussie selling, before the antipodean was able to regain its footing into Europe and find renewed bids on the back of some broader USD offers.
Relative Performance Versus the USD Tuesday (as of 9:30GMT)
Moving on, the EU finance ministers will reconvene on Tuesday to discuss the long term solution for Greece. Although restructuring and rescheduling has been ruled out to this point, suggestions by EU Juncker for “re-profiling” of Greek debt have been better received. Nevertheless, the vagueness of the “re-profiling” terminology leaves the door open for much discussion and does not bode well for any near-term solutions, which could weigh more heavily on the Euro.
Price action did start to pick up a bit into the European session with rumors of a higher than expected UK inflation reading being confirmed and opening an intraday surge in Sterling. Meanwhile, sentiment data out of the Eurozone was mixed with German ZEW economic sentiment a good deal weaker, while the German current situation reading was impressive after hitting record highs. Overall, currencies continued with their corrective ways against the buck and looked poised for additional gains into North America.
Looking ahead, US housing starts and industrial production are the key releases in North American trade. US equity futures and commodities prices consolidate their latest moves and trade relatively flat into European trade. US equity futures and commodities prices are tracking moderately higher.
EUR/USD: (See Below)
USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support by the bottom of the daily Ichimoku cloud and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported in the 80.00’s with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming days.
GBP/USD: The market is starting to give way, with the price now dropping back below the 50-Day SMA to warn of additional declines over the coming sessions. Look for deeper setbacks below 1.6000, with any rallies now expected to be well capped ahead of 1.6400. Ultimately, only back above 1.6520 gives reason for concern.
USD/CHF: Starting to show signs of basing off of the recently established record lows by 0.8550, with the market putting in a solid bullish close for two consecutive weeks and breaking back above the previous weekly high. Next key resistance comes in by 0.9000 and a break above will further confirm recovery structure and open the door for a move back towards a medium-term lower top at 0.9340. Look for any intraday setbacks to be well supported above 0.8700 on a daily close basis. Ultimately, only a daily close back below 0.8700 delays and gives reason for concern.
A model type and German bank lead sales in Eur/Usd with an ACB sited on dips. Real money, momentum and spec types all seen buying in Cable. M&A related talk dominates Usd/Jpy with exporter sales trying to cap topside moves.
TRADE OF THE DAY
EUR/USD: The market has come off some 10-big figures in a matter of days to take out some critical support and signal a shift in the structure. However, a necessary corrective bounce is underway, and selling into rallies is the preferred strategy. The daily Average True Range (“ATR”) comes in at 185 points and this projects a potential high on Tuesday by 1.4315. This level also directly coincides with the 50-Day SMA and as such, we like the idea of taking a shot and establishing a fresh short position on a move to 1.4315 today in anticipation of the next interday lower top. STRATEGY: SELL @1.4315 FOR OPEN OBJECTIVE; STOP 1.4455. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM NY TIME) ON TUESDAY.
Written by Joel Kruger, Technical Currency Strategist
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