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Euro Seen Gravitating Towards August 2010 Lows in 1.2500's

Euro Seen Gravitating Towards August 2010 Lows in 1.2500's

2012-01-06 11:22:00
Joel Kruger, Technical Strategist
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  • Risk correlated markets remain under pressure into Friday trade
  • Rumors and additional uncertainties in the Eurozone have been influencing
  • Comments by Greek PM do not help matters
  • Euro could accelerate towards 1.2500 support
  • Key economic release due later in the form of US NFPs

The Euro and risk correlated assets remain under pressure heading into Friday and at this point, there appears to be no sign of any relief for these markets. Rumors of an S&P France downgrade and an incident at a North Korean nuclear facility have not helped matters, and this weighs on an already stressed situation on the global macro front, with the Eurozone economy looking increasingly fragile. The latest suggestion by Greece’s PM that the country may default in March and the leave the Eurozone has been a primary driver of Euro selling over the past few hours and disappointing EZ auction results coupled with talk of recapitalizations have added to the high degree of uncertainty in the region.

Relative performance versus the USD Friday (as of 10:15GMT)

  1. CAD +0.11%
  2. NZD +0.09%
  3. EUR -0.01%
  4. CHF -0.01%
  5. JPY -0.03%
  6. GBP -0.04%
  7. AUD -0.18%

At this point, next key support for the Euro comes in by the 1.2500 area, and we could see a test of this level sooner than even we had anticipated. We are also starting to see a potential breakdown in familiar correlations where USD performance had been inversely correlated with US economic data results. Economic data has been quite solid out of the US in recent trade and the stronger results have actually been inspiring fresh USD bids. As such, we continue to be very bullish on our outlook for the US Dollar across the board, and recommend looking to fade other major currencies against the buck over the coming months. Some of these currencies include the commodity bloc currencies, highlighted by the Australian, New Zealand and Canadian Dollars. Looking ahead, all eyes will be on today’s US employment report.

ECONOMIC CALENDAR

Euro_Seen_Gravitating_Towards_August_2010_Lows_in_1.2500s_body_Picture_5.png, Euro Seen Gravitating Towards August 2010 Lows in 1.2500's

TECHNICAL OUTLOOK

Euro_Seen_Gravitating_Towards_August_2010_Lows_in_1.2500s_body_eur.png, Euro Seen Gravitating Towards August 2010 Lows in 1.2500's

EUR/USD: After finally taking out the 2011 lows from January by 1.2870, the market seems poised for the next major downside extension. Overall, we retain a strong bearish outlook for this market and look for setbacks to extend towards the 1.2000 handle over the coming months. While we would not rule out the potential for corrective rallies, any rallies should be very well capped ahead of 1.3200. Thursday’s daily close below 1.2850 could however accelerate declines towards the August 2010 lows in the1.2500’s.

Euro_Seen_Gravitating_Towards_August_2010_Lows_in_1.2500s_body_jpy2.png, Euro Seen Gravitating Towards August 2010 Lows in 1.2500's

USD/JPY:Despite the latest pullbacks, we continue to hold onto our constructive outlook while the market holds above 76.55 on a daily close basis. We believe that any setbacks from here should be limited in favor of a fresh upside extension back towards 79.55 over the coming weeks. Look for a break above 78.30 to confirm and accelerate, while only a daily close below 76.55 negates and gives reason for pause.

Euro_Seen_Gravitating_Towards_August_2010_Lows_in_1.2500s_body_gbp2.png, Euro Seen Gravitating Towards August 2010 Lows in 1.2500's

GBP/USD: Rallies have been very well capped ahead of 1.5800 and it looks as though a lower top has now been carved out by 1.5780 ahead of the next major downside extension back towards the October lows at 1.5270. Key support comes in by 1.5360 and a daily close below this level will be required to confirm bias and accelerate declines. Ultimately, only back above 1.5780 would negate bearish outlook and give reason for pause.

Euro_Seen_Gravitating_Towards_August_2010_Lows_in_1.2500s_body_swiss1.png, Euro Seen Gravitating Towards August 2010 Lows in 1.2500's

USD/CHF: The recent break above the critical October highs at 0.9315 is significant and now opens the door for the next major upside extension over the coming weeks back towards parity. A confirmed higher low is now in place by 0.9065 following the recent break over 0.9330, and next key resistance comes in by 0.9785. Ultimately, only back under 0.9065 would delay constructive outlook.

--- Written by Joel Kruger, Technical Currency Strategist

To contact Joel Kruger, email jskruger@dailyfx.com. Follow me on Twitter @JoelKruger

To be added to Joel Kruger’s distribution list, send an email with subject line “Distribution List” to jskruger@dailyfx.com

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