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Euro Still Showing Bearish Tendencies Despite Bullish Triangle Break

Euro Still Showing Bearish Tendencies Despite Bullish Triangle Break

2011-08-30 11:34:00
Joel Kruger, Technical Strategist
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  • Risk correlated assets give back overnight gains
  • Renewed concerns over Eurozone economy
  • Eurozone economic data much softer than expected
  • Italian auction disappoints
  • Euro technical studies still overall bearish

We saw quite a turnaround in the European session with the markets reversing course and coming under pressure as more discouraging news surfaced out of the Eurozone. The fundamental drivers came from a combination of factors including; a very weak Italian auction, expressed concern from the Bank of Italy on the growth outlook, S&P warnings of a double dip recession, and some much weaker than expected Eurozone confidence data. In our Opening Comment from earlier today we highlighted our skepticism with the recent recovery in risk correlated assets and warned that the moves were more a function of some corrective price action and thin end of summer trade rather than legitimate moves with real traction. The following is an excerpt from the Opening Comment:

“On the strategy front, it is worth keeping an eye on the Euro to see if the market can extend gains beyond yesterday’s 1.4550 highs. While the market has recently broken out of a multi-week triangle and is showing bullish tendencies, we are still not yet convinced of the strength and inability to establish above 1.4550 followed by a break back below 1.4500 will help to confirm our suspicions and open the door for a resumption of broader weakness.”

We have now seen a legitimate topside failure in the Euro above 1.4500 with the market taking out the previous daily low to set up the strong potential for a bearish reversal day. As per our technical analysis we also expressed skepticism with the recent bullish break of a sequence of inter-day lower tops since May and warned of the possibility for a false break and sharp bearish reversal.

Euro_Still_Showing_Bearish_Tendencies_Despite_Bullish_Triangle_Break_body_eur.png, Euro Still Showing Bearish Tendencies Despite Bullish Triangle Break

Upon further analysis, we would also argue that the bearish structure of lower tops in Eur/Usd is still very much intact. A confirmed lower top requires a break to a fresh lower low, and if we look at the chart the most recent lower low comes in on July 12th when the market traded down to1.3840. This means that the most recent lower top was in fact all the way back in June by 1.4700, and the current price action is merely some more consolidation ahead of an eventual break lower back below 1.3840. Ultimately, only a break back above 1.4700 would therefore negate the structure and give reason for concern.

Relative Performance Versus the USD on Tuesday (as of 11:30GMT)

  1. NZD +0.35%
  2. JPY -0.05%
  3. AUD -0.08%
  4. CAD -0.09%
  5. GBP -0.73%
  6. EUR -0.74%
  7. CHF -0.84%

Looking ahead, key releases due In the North American session include; Canada current account, US consumer confidence and the release of the Fed Minutes from the meeting on the 9th of August. While we have already been showered with a good deal of post FOMC official commentary, the Minutes could help to provide some added insights into the direction of monetary policy. US equity futures and oil prices are tracking moderately lower, while gold has recovered from overnight setbacks and tracks higher into the North American morning.

ECONOMIC CALENDAR

Euro_Still_Showing_Bearish_Tendencies_Despite_Bullish_Triangle_Break_body_Picture_6.png, Euro Still Showing Bearish Tendencies Despite Bullish Triangle Break

Written by Joel Kruger, Technical Currency Strategist

If you wish to receive Joel’s reports in a more timely fashion, email jskruger@dailyfx.com and you will be added to the distribution list.

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