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Euro Tests Next Key Resistance; Break Above 1.3070 Exposes 1.3400

Euro Tests Next Key Resistance; Break Above 1.3070 Exposes 1.3400

2012-01-24 12:46:00
Joel Kruger, Technical Strategist
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  • Still waiting for official Greece deal; default risks remain
  • Technicals point to additional Euro upside
  • Investors encouraged by ramped up EU official efforts
  • Eurozone PMIs impress; UK public finances also solid
  • Fed kicks off two day policy meeting
  • BOJ leaves policy unchanged; downgrades economic assessment

Any hopes for a Greek deal were quashed in recent sessions with officials unwilling to come to an agreement. Still the Euro remained very well bid and rallied to fresh multi-day highs by 1.3065 in European trade. Technically, there seems to be more evidence for additional upside in this market over the coming sessions and we continue to see risks over the short-term for a move towards the 100-Day SMA at 1.3400 before consideration is to be given for underlying bearish resumption. Gains have stalled for now ahead of 1.3070 which represents the 50-Day SMA and some key range highs from late 2011/early 2012. However, this level should be overcome and we look for some positive developments out from Eurozone EconFinMins to help catalyze the next Euro surge. Economic data has also been Euro supportive after a round of Eurozone and German PMIs showed a nice improvement.

Relative performance versus the USD Tuesday (as of 12:15GMT)

  1. CHF +0.03%
  2. GBP -0.02%
  3. EUR -0.04%
  4. NZD -0.14%
  5. CAD -0.30%
  6. JPY -0.38%
  7. AUD -0.52%

But many have still been questioning the relative Euro strength in recent sessions given the failure to reach an agreement on Greece. We contend that the more aggressive action and sense of urgency from EU officials is encouraging and it seems as though real progress is on the verge of being made. ECB Gonzalez-Paramo, Weidmann and Mersch are all on the wires today and have are providing added insights. Elsewhere, public finance data out of the UK was solid and has helped the Pound to emerge as one of the stronger currencies on the day.

Earlier today, the Bank of Japan left policy unchanged as was widely expected but also downgraded its assessment for the economy for the third straight time. Usd/Jpy has been on the move a bit, mostly on cross related Eur/Jpy demand, with the pair breaking back above some short-term range highs at 77.30 to potentially warn of fresh upside ahead. Looking ahead, the Fed is set to kick of its two day policy meeting and things could get interesting over the next couple of days as investors look for more guidance on the Fed’s ultra accommodative policy.

Moving on, both Aussie and Kiwi remain very well bid, but we continue to take these moves with a grain of salt and would recommend looking for opportunities to fade these commodity currencies on any additional rallies. Data out of both economies have certainly not been currency favorable, with New Zealand producing much softer inflation in the previous week, while Aussie employment was highly disappointing and inflation readings on Monday were softer. The RBNZ is slated to meet later in the week and Australia CPI is due out early Wednesday.

ECONOMIC CALENDAR

Euro_Tests_Next_Key_Resistance_Break_Above_1.3070_Exposes_1.3400_body_Picture_5.png, Euro Tests Next Key Resistance; Break Above 1.3070 Exposes 1.3400

TECHNICAL OUTLOOK

Euro_Tests_Next_Key_Resistance_Break_Above_1.3070_Exposes_1.3400_body_eur0.jpg, Euro Tests Next Key Resistance; Break Above 1.3070 Exposes 1.3400

EUR/USD: The market has finally managed to find some bids and although the broader underlying trend remains intensely bearish, the risks from here are for additional corrective gains back towards the 50 and 100-Day SMAs in the 1.3100-1.3400 area before the next lower top carves out. Some falling trend-line resistance has already been broken on the daily chart and the 10-Day SMA looks to be on the verge of crossing back above the 20-Day SMA to provide added confirmation for short-term bullish structural shift. Setbacks should now be well supported ahead of 1.2750, while only back under 1.2620 negates short-term bull bias. A bullish reversal week further supports short-term constructive outlook.

Euro_Tests_Next_Key_Resistance_Break_Above_1.3070_Exposes_1.3400_body_jpy2.jpg, Euro Tests Next Key Resistance; Break Above 1.3070 Exposes 1.3400

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_Tests_Next_Key_Resistance_Break_Above_1.3070_Exposes_1.3400_body_gbp2.jpg, Euro Tests Next Key Resistance; Break Above 1.3070 Exposes 1.3400

GBP/USD: The market has mostly been locked in some sideways chop over the past few weeks with any rallies very well capped ahead of 1.5800 and setbacks supported on dips below 1.5300. Until either side is convincingly broken, we would expect to see additional range trade. Therefore the preferred strategy is to look to buy range dips and sell by range highs. Only a weekly close above 1.5800 or below 1.5250 would give reason for outlook shift.

Euro_Tests_Next_Key_Resistance_Break_Above_1.3070_Exposes_1.3400_body_swiss1.jpg, Euro Tests Next Key Resistance; Break Above 1.3070 Exposes 1.3400

USD/CHF: Although our overall outlook remains intensely bullish, the market is in the process of some interday consolidation before the next major upside extension beyond 0.9600 and towards parity. As such, from here, we see risks for additional setbacks towards 100-Day SMA by 0.9100 from where a fresh higher low is sought out. Ultimately, only a sustained break back under 0.9000 would negate constructive outlook and give reason for pause. Dips towards the psychological barrier should therefore be used as formidable buy opportunities.

--- 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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