Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD
Bullish price action has set the tone over the past few weeks, with the euro rising above the 1.3700 figure but yet to break the 1.3800 level of resistance. At this time it’s too early to call for a specific direction; however, I favor the downside as the emerging markets story will surely come back into the picture in the coming weeks, if not days. This should favor the USD for its safe haven status along with the yen.
Euro Update and Outlook
While I’ve been disappointed to not see follow-through after January’s drop below 1.3500, I’m more cognizant of the sustainable break above the 1.3700 level. As mentioned before, the 1.3800 is the big figure that needs to be broken before I take a turn and take a neutral stance on the pair. If this occurs, I will be looking for failure and a risk-off scenario to once again sell the EUR/USD pair.
It may be time for consolidation somewhere between the 1.3500-1.3800 level while the market takes a backseat role and waits for Fed Chairman Janet Yellen to provide an updated outlook on the US economy as well as guidance on monetary policy, specifically looking for more information on the recent slump in payrolls as extreme weather has been cited as the culprit. The most recent Fed Minutes that were released earlier this week made note of a change in guidance away from the unemployment rate – perhaps taking the first steps towards qualitative measures. My expectations are for the Fed to continue tapering instead of pausing as members have stated numerous times that QE could always be adjusted upwards to accommodate for negative developments.
On the tech side, the 1.3800 remains the key figure to break before momentum strategies take the pair to the 1.40 level. This could potentially drive the market higher and test the 1.4250 level. I still believe this is unlikely and this topping formation is just one daily candle away from rolling over and beginning a move towards 1.30 and below. The 1.38 figure is important as it marks the 62% retracement level of the 2011 highs -2012 lows and has been tested numerous times in the last 6 months without being able to close higher; the 1.4250 level noted earlier marks the 76.4% retracement of the same period. To the downside, a break below 1.3500 should give shorts a fresh start and momentum players will join in on the run lower. Depending on the strength of the drop, I will look at 1.33 as the first consolidation level.
The Next Few Days
If the 1.3800 level is broken, it will be important we have a daily close above the figure. More likely than not, we’ll see consolidation and I expect the dollar to weaken only if economic data continues to underperform. While weather may be used as the reason for the temporary lackluster performance, it will take a few more months to confirm this theory; therefore, I expect to see range trading within a more volatile environment. The Group of Twenty Finance Ministers (G20) will be meeting this weekend so there could be some statements relating to the US monetary policy affecting Emerging Markets.
Short term resistance – 1.3750-1.3800
Short term support – 1.3650-1.3500
Looking for momentum to pick up on a break of 1.3500