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Euro Setbacks Accelerate into North America on Fitch Warnings

Euro Setbacks Accelerate into North America on Fitch Warnings

2012-01-11 11:55:00
Joel Kruger, Technical Strategist
  • Euro rallies short-lived and currency remains well offered
  • German GDP growth as expected
  • Break back below 1.2665 exposes 1.2500 further down
  • Fitch warnings accelerate Euro declines ahead of North America
  • Talk of another China RRR cut makes the rounds
  • Swiss Franc in focus with SNB in transition
  • Euro cross rates by record and multi-year lows

Any attempts for the Euro to establish a decent corrective rally have been quashed, with market participants still extremely nervous about Eurozone recovery prospects. Although we remain aggressively bearish on our outlook for the Euro and currencies in general against the buck, even we are somewhat surprised with the price action and inability for the Euro to mount a more significant gain. Tuesday’s gains have now been completely erased with the market breaking back below the previous daily low. This once again puts the focus back on the recent multi-month lows at 1.2665 from Monday, below which exposes next key support in the 1.2500 area further down.

Relative performance versus the USD Wednesday (as of 11:45GMT)

  1. NZD -0.09%
  2. CAD -0.19%
  3. JPY -0.21%
  4. AUD -0.35%
  5. CHF -0.58%
  6. EUR -0.59%
  7. GBP -0.65%

Overall, things have been rather quiet on Wednesday with the Euro finding some early bids on talk of another China RRR cut, but then reversing sharply on solid corporate and buy-side offers and accelerating on comments from Fitch that the "ECB must do more to prevent cataclysmic Eur collapse.” Moving on, we would recommend keeping an eye on the Franc which could be at risk for some underperformance given its proximity to the EUR/CHF 1.2000 floor and solid prospects for Thomas Jordan (proponent to weaken Franc) to take over at the head of the SNB. Additionally, the Euro crosses have taken a beating in recent months with EUR/AUD by record lows and EUR/JPY at multi-year lows. Technical studies in these markets are highly oversold and there is a risk over the coming sessions for some form of relief.


Euro_Setbacks_Accelerate_into_North_America_on_Fitch_Warnings_body_Picture_5.png, Euro Setbacks Accelerate into North America on Fitch Warnings


Euro_Setbacks_Accelerate_into_North_America_on_Fitch_Warnings_body_eur.png, Euro Setbacks Accelerate into North America on Fitch Warnings

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. However, shorter-term studies are stretched and from here, we would not rule out the potential for some corrective upside back towards the 1.3000-1.3200 area over the coming days, before underlying bear trend resumption.

Euro_Setbacks_Accelerate_into_North_America_on_Fitch_Warnings_body_jpy2.png, Euro Setbacks Accelerate into North America on Fitch Warnings

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_Setbacks_Accelerate_into_North_America_on_Fitch_Warnings_body_gbp2.png, Euro Setbacks Accelerate into North America on Fitch Warnings

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_Setbacks_Accelerate_into_North_America_on_Fitch_Warnings_body_swiss1.png, Euro Setbacks Accelerate into North America on Fitch Warnings

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

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