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Refer to EUR/USD Before Trading Euro Cross Technicals

Refer to EUR/USD Before Trading Euro Cross Technicals

2017-11-09 04:30:00
John Kicklighter, Chief Strategist
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The Euro crosses are broadly staging the most remarkable technical patterns across the liquid FX market. However, this borderline potential is just as stymied in potential just as surely as other markets see their trends fall apart. What should we expect from EUR/USD, EUR/JPY and other Euro crosses?

Talking Points:

  • EUR/USD achieved a clear break on a high profile head-and-shoulders pattern two weeks ago, but follow through has been absent
  • Technicals alone struggle to facilitate follow through when markets are not oriented towards developing trend
  • While there are great technicals for EUR/USD, EUR/JPY, EUR/AUD, EUR/NZD and EUR/GBP; set trade expectations accordingly

We don't know where the Euro will head, but we can see how the speculative rank is positioning for short-term forecasts and follow critical themes. Check out the DailyFX Sentiment Page to see how traders are positioned for EUR/USD and download the Euro 4Q forecast on the Trading Guides Page.

There is an uncanny number of attractive, big-picture technical patterns among the Euro crosses. Given the Euro's charge through 2017, the speculation and staging for reversal versus follow through seems universal. Charts reflecting these sort of patterns are considerable opportunities in appropriate market conditions; but we need to ask whether we actually have a backdrop that can make good on the insinuation that these technicals are making. For my own evaluation of that question, I refer to the EUR/USD. I have not seen a clearer staging of a technical pattern and subsequent break in months. This benchmark pair charged a one-sided move (bullish) throughout 2017, spent three months developing a consolidation/reversal pattern (head-and-shoulders) and signaled a key break (the ECB rate decision breaking the 'neckline' at 1.1675). All the elements were on hand with the crucial exception of follow through.

Unless we are trading a binary derivative that pays out when a certain level is met or breached, there is no meaningful profit to be found in a technical break. The return is registered in the follow through that follows that first step. In the days since the EUR/USD's break, there has been almost no follow through to fulfill the technical implications the setup would insinuate. That is due to both the general conditions of the financial system and the lack of meaningful fundamentals. Consolidation and a lack of conviction are common place across the markets. Even equities that achieve fresh record highs on a regular basis do so without momentum. This means any high profile developments like this head-and-shoulders pattern needs to come loaded with a particularly strong fundamental motivation to carry the trend beyond the opening move. And, looking at the docket, neither the Euro nor Dollar can provide for EUR/USD or the crosses.

With the fundamental potential coming up short, some of the most remarkable looking technical patterns threaten to either collapse under their own weight or draw trader interest without actually paying out. Yet, there is always the chance that a catalyst or theme arises to support a significant move unexpectedly. For EUR/JPY's range following its 2017 rally, a reversal looks inevitable below 131.50; however, without a full-scale risk aversion to provide drive, such a move would likely falter very quickly. EUR/GBP has a well-worn neckline at 0.8750 but not the build up to topple with speculative intention. EUR/NZD was tempted by the RBNZ this morning, but a critical trendline break has yet to be achieved despite the fundamental spark. And, EUR/AUD carries the densest round of technical boundary amongst the crosses yet the RBA left the other side of the pair adrift. What should we expect from this high profile technical patterns? We discuss that in today's Quick Take video.

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Refer to EUR/USD Before Trading Euro Cross TechnicalsRefer to EUR/USD Before Trading Euro Cross TechnicalsRefer to EUR/USD Before Trading Euro Cross TechnicalsRefer to EUR/USD Before Trading Euro Cross Technicals

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