Tag Archives: EUR/USD

Trade Leader Alex Kazmarck of SpotEuro presents forex market analysis.

Update

A quiet market to start the week with fx markets in a tight range and equity markets higher, with the S&P hitting all-time highs. The US and UK holidays now behind us, I expect the markets to liven up.

I see a few opportunities in the short term for entry on the USDJPY, the EURUSD, and the AUDJPY currency pairs. I’ve highlighted some technicals below.

Technicals

If you’ve missed an opportunity to short the EURUSD, the 1.3760 and 1.3800 levels are excellent will provide an entry point for new shorts. The latter should act as strong resistance given it supported the euro for the last 15 days in April prior to rising and failing at the 1.40 figure. The aftermath was a strong push to the downside with the 1.3600 level acting as short term support. The retracement, as noted on the chart, may occur during the next few days ahead of the Eurozone CPI flash estimate on June 2nd and the ECB rate announcement and press conference on June 5th. The 1.3905 is 50% of the aforementioned retracement of the sharp move lower from May 8th through the 15th of May. Another opportunity with more risk is to sell on a break of 1.3600. Stops should be set from 1.3850 to the 1.40 top, depending on leverage and risk tolerance.

EUR/USD chart

The AUDJPY also had a setup in early May. A break of the wedge on the 19th of May was followed by 200 pips further to the upside. Since then, price has retraced to the 50% fib of 94.58 and is now looking to turn over and perhaps find another 200 pips profit for short positions. One caveat is that this is a play on USDJPY and AUDUSD of which I expect both to move lower in the short term, but with the Aussie underperforming, which would lead the AUDJPY lower. The upside to this trade is that there is a small chance the AUDUSD will fall while USDPY rises. Stops on the AUDJPY should be north of 95.00, with 96.00 acting as reversal for further AUD gains; though very unlikely.

AUD/JPY

Finally, the USDJPY, which has been trading within the 101 and 104 levels for most of the year. While I see longer term fundamentals supporting the dollar, the short term view may see the 100 figure tested. While I am uncertain of this, I am inclined to wait for a break or for more clarity. Currently, the 101 is 50% fib of the rally that took place in the final quarter of last year. The 100 level is 61.8% fib that could lead a strong supportive role within a larger move in favor of the dollar. Possible ways to trade this setup is a short on a break of 101 with take profit at 100. Another possibility is to buy any weakness from the current 101.90 level with stops below the 101 level. I would be more excited to buy between 98 and 100 for a longer term move.

USD/JPY

Summary

There are many trade setups that occur on many different time frames. The main reason for failure within this business is the lack of risk management, and more often than not, discipline. If a trade setup does not work, it’s imperative to follow one’s trading plan. This is even more important when one includes the use of leverage.

Summer is usually a slow time for markets, but with volatility already at 20 year lows, this summer could be more interesting than the ones before. With the Fed tapering and interest rates on the rise, along with the market discounting other risk factors, especially China, I suspect this summer won’t end without an increase in volatility.

Trade Leader Alex Kazmarck of SpotEuro presents forex market analysis.

Update

Euro top at 1.40 seems to be the magic number. Today, ECB President Draghi signaled during the Q & A part of the press conference that if inflation continues to come in at such low figures, the ECB is comfortable acting in June, sending the euro plummeting 100 pips. While we’ve seen the euro bounce back several times over the past few months, today’s price action is pointing to a more fundamental shift in policy. He also verbally intervened in the euro’s high exchange rate, saying that it plays a very large role in inflation figures and that something may have to be done   about it. Very important to keep an eye on June staff projections and inflation figures during the next few weeks.

Ukraine situation has recently been given a helping hand as Russian President Putin asked the Eastern Ukrainian population to hold off on the May 11th referendum; however, it seems the vote will go on anyways and I’m cautious at this temporary relief rally that we’ve seen in equities.

I continue to be bullish on the USD and today’s bounce in the Dollar index seems to have made clear that the bottom lies at the 79 level. Still, today’s markets are very dynamic, with many moving parts. Short term positions could see more volatility in the near term.

Technicals

Some charts to keep in mind during the next few weeks. Presented with little commentary.

EURUSD Daily

eurusd

GBPNZD Daily

GBPNZD

EURCAD Daily

EURCAD

Conclusion

While certain strategies could work very well in this market, specifically longer-term fundamentally driven, it’s been difficult to hold on to certain shorter term ideas. I think there are a lot of risks that have not been accurately priced in that are currently reflected in today’s record low European bond yields (Italy). While there could be a lot of volatility ahead of us, I think the opportunity lies in the US Dollar, not only for safe haven reasons, but more fundamentally in the economic recovery, which may or may not hold. It should be a win-win situation as a safe haven play and as a recovery play.

EUR/USD

Resistance: 1.3995

Support: 1.3810; 1.3700; 1.3500

1 Comment

Trade Leader Alex Kazmarck of SpotEuro presents analysis of the EUR/USD.

Update

Frustration would be the word to best describe feelings for any trader attempting to short the euro during the past few months. As economic data continues to suggest that the ECB will eventually have to begin some form of QE in order to protect the euro-zone from deflationary pressures, the euro somehow finds a way to bounce following decent selling pressure and is now grinding higher, back towards the 1.39 level. Even recent data from German suggested a lack of inflation with preliminary m/m CPI figures coming in at -0.2% vs. -0.1% est. and vs. 0.3% prior. Euro M3 Money Supply y/y also came in less than expected and the European CPI Flash estimate y/y was weaker than expected with a reading of 0.7% vs. 0.8% estimated, but showed improvement from a prior reading of 0.5 percent.

We’ve also heard from different politicians recently. ECB policymaker Noyer said that the current strength of the euro is a powerful deflationary factor and that low inflation will persist in the euro zone for some time, echoing recent comments from ECB President Mario Draghi who also identified the strong euro as a potential trigger for policy action. US Treasury Secretary Lew, Chicago Fed President Evans, IMF chief economist Blanchard, and the OECD, have recently spoken out against deflationary pressures and the problems that inaction will have on the euro area. While current economic data isn’t confirming deflation at this time, a continued weak economic recovery will certainly push the ECB in the direction of asset purchases or negative interest rates in the near future.

EUR/USD Daily Chart - click to enlarge EUR/USD Volatility - click to enlarge

Technicals

The euro remains within a rising channel but has recently consolidated within a wedge with 1.3967 and 1.3906 as two important pivot highs. A break above 1.3900 and a closer above the figure will be bullish for the euro. A failure to close above the 1.3900 figure and a hawkish Yellen followed by better than expected NFP figures could reverse today’s action and a close below today’s low should being a new leg to the downside. I’m paying close attention to the wedge within the rising channel and am very bearish if the channel were to break, especially with a close below the 1.3775 level. Shorter term, the euro has momentum and there are some technical indicators pointing to further gains; however, with fundamental news still in front of us, momentum could change very quickly.

Conclusion

The euro is currently stuck within a wedge, it has momentum from today’s strong reversal to break above the downward sloping resistance line and head above the 1.40 level, especially if the Federal Reserve shows some hesitation in its tapering schedule today. Also, keeping in mind that NFP figures are out this Friday, I expect the market to react in favor of the USD if the figures beat expectations, especially in the unemployment rate. I expect a range from here until the next catalyst.

Resistance: 1.3900

Support: 1.3775 - 1.3700

Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD.

Update

The euro has traded lower during the past two weeks, falling below 1.37 on Friday. The economic schedule this week is light, which would normally lead to less volatile sessions, but with Eastern Ukraine making noise in the geo-political sphere, capturing and barricading in government buildings in protest of the new government, we could see some big moves if America and EU begin to discuss more economic sanctions on Russia. Given the large natural gas reserves and pricing control, Europe is reliant on a good relationship with Russia, so I think it will be unlikely that Europe will rush to support any major economic sanctions. The story that will drive the EUR/USD pair this week will most likely continue to be prospects of QE within the EU with inflation figures from France on Thursday and Germany on Friday. Also, I’m paying close attention to FOMC meeting minutes (Thursday), US PPI figures out on Friday, and G20 meetings Thursday and Friday.

Technicals

The EUR/USD is entering dangerous territory. It hasn’t been able to break above 1.3900 with conviction and has traded back to the 1.3700 level, a very important support level. If the pair breaks below Friday’s low of 1.3673 it could very well continue dropping to the 1.3600 figure with 200 day MA providing good support near the 1.3550 zone. Resistance should come near the 50% retracement level of 1.3810, measuring from March pivot high to Friday’s low.

EUR/USD daily chart - click to enlarge

Conclusion

While I’ve been discussing the prospects for a euro short for some time now, we could see another bounce from 1.3700 and a test of 1.40+ if deflationary fears are eased with higher CPI and PPI figures. ECB VP Constancio said that inflationary figures will improve in April as Easter holiday travels should boost consumption. While there is a lack of confirmation in any direction, fundamentally the US is further ahead in the recovery process and inflationary outlook favors the US Dollar.

Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD.

The euro’s lack of momentum above the 1.39 level has left a lot of traders consolidating their positions. There remain a lot of uncertainties that could put pressure on risk-on strategies and ECB President Draghi’s comments on Tuesday that the ECB is paying close attention to the exchange rate level drove the EUR/USD pair to test the 1.3750 level.  Draghi also mentioned that the exchange rate plays an important role in inflation figures while at the same time saying that the rate isn’t a policy target. Perhaps this confused some traders as the pair bounced back following a 50 pip plunge and almost recovered to its opening price of 1.3840. Comments from Bundesbank President Weidmann also put downside pressure on the euro as he, along with other officials, have raised concerns over the worryingly low level of inflation in the euro zone, which increased the prospect of a large-scale asset purchases as Weidmann said that such an option is not ruled out. Currently down 33 pips, trading at 1.3793 early Wednesday in NY.

EUR/USD daily chart - click to enlarge

Technicals

Not much has changed in my technical analysis. The fact that the EUR/USD pair is trading below 1.3800, which is the top of the left shoulder in the “Head/Shoulders formation”, a break below 1.3700 should confirm downwards movement and I expect momentum to pick up and lead price to test 1.3600 in the coming days. As mentioned in the last update, the break below the upwards sloping channel from January to March remains valid and supports further downside euro weakness. Two important levels remain for the euro at this time, if it has any chance of reaching and breaking 1.40: the 1.3876 pivot high on the 21st of March and 1.3967 high on the 13th of March.

Guidance

While the euro remains within a reliable 500 pip range, between 1.3500 and 1.4000 for the last five months, a break of either top or bottom figure will most likely be sustained in the coming months. As mentioned earlier, there still remains a lot of uncertainty. Yesterday, President Draghi said that the Euro-area crisis is not over and I believe him. Europe is much more intertwined with Russia than America and while sanctions will hurt both economies, instability within Ukraine could prove more harmful to Europe than Russia. Expect more of the same for the time being: uncertainty and volatility.

Short term resistance – 1.3850-1.3900/1.4000

Short term support – 1.3750-1.3650

Trade Leader Alex Kazmarck of SpotEuro presents analysis of the EUR/USD:

Update

The euro remained elevated above the 1.3900 level following the Crimean referendum and sanctions imposed by the US on the Russian political and business people closely connected to the Russian government. While most of this was expected, I think the market reacted positively mostly due to the fact Russia did not invade Eastern Ukraine, where people have been rallying against the newly formed Ukrainian government. I anticipate neither the Russians nor the American/EU leaders settling on this issue for some time so I think it’s worth paying close attention to what occurs as the market will be ready to react negatively on any news of a Russian invasion or annexation of Eastern Ukraine.

Technicals and Fundamentals

While the EUR/USD pair was able to break and close above the 1.3900 level, it has failed to gain momentum, mostly due to a risk-off environment centered on the geo-political conflict in Ukraine. Any positive solution should open more room to the upside and a break of 1.40 will most likely give the bulls a clear run for 1.42-1.45 levels. ECB President Draghi has been on the wires last week curtailing the euro’s upside since the stronger euro make it more difficult to stimulate inflation. There are plenty of risks that remain, including China’s slowdown and its shadow banking system which is beginning to show its cracks with the string of corporate bankruptcy filings over the last few weeks.

Currently trading at 1.3925, a 38% retracement of the latest leg higher that started on the 3rd of February brings us to support at 1.3800. A deeper retracement below 1.3700 could be a stronger sign of momentum waning and I would expect a correction back towards the supporting trend line of 1.3500 (from Summer of 2012 lows extending to the lows set at the end of January and early February of 2014).

Guidance

There are several factors that are relevant to EUR/USD price action in the near term: ECB and Draghi’s stance on the higher euro, the Ukrainian conflict and the level of uncertainty involved, and the Fed’s tapering of the QE program. The latter has been priced in with expectations of taper to continue and Draghi’s content on verbally intervening when the euro pushes into the 1.40 figure. Economic data will be important to watch for signs of inflation as the latest EU data could be a one-off. Worse economic data will push for more action from the ECB and the Fed may possibly surprise the market with a pause to get a reading of consistency within the US recovery.  There is a lot to process so guidance from these events will be crucial for the next push.

Short term resistance – 1.1.3970-1.400

Short term support – 1.3830-1.3900

Update

Today’s ECB press conference featuring President Draghi disappointed all the euro shorts as the EUR/USD pair traded higher by 80 pips. Draghi maintained the low interest rate policy; however, the market expected announcement of SMP sterilization in order to incite inflation. This did not occur, and with the recent pull out of Russian forces within Crimea region, all markets have been in “risk-on” mode with the dollar index slipping below the 80 level.

Euro Update and Outlook

The recent events in Ukraine and the Crimea region had brought instability to the markets, mostly affecting the Russian markets with the equity index losing an astounding 10% of value in one day, most since the 2008 crisis. The dollar and the yen acted as safe havens and many thought the risk-off would last longer than one to two days; with Russia pulling troops out of the Crimea region and with the recent news from Crimea Parliament voting to become part of Russia, it’s uncertain how events will unfold as the US and EU have threatened Russia with sanctions, surely to go unnoticed by President Putin. At this time, I expect the euro being affected by geopolitics only if actions are escalated by both sides. With the pair trading above 1.3830 at this time, it looks poised to close above the 1.3800 figure and may reach December 27th high of 1.3893.

dxy

Technicals

Last few times I wrote about this currency pair, I kept mentioning the importance of closing above 1.3800. While this is important as it will be the break of important resistance, there is another important level of 1.3900, which marks the downward sloping trend-line from 2008 high of 1.60 to the high of 2011 just under the 1.50 level and the 62% retracement of the leg lower from 2011 high to 2012 low. Coincidently, the dollar index has reached an important low with the upward sloping trend-line from 2011 low of 72.67 to 2013 low of 78.71 with current support at 79.70. If the market holds current momentum, it looks clear to break both of these levels.

A failure to move higher could pressure euro bulls and lead to profit taking ahead of Friday’s data. Expect range trading between 1.3820-1.3860 until then.

eur 5 year

NFP

With the release of employment data less than 24 hours away, we must continue to see how the markets react to the data. I expect a better than expected figure to support the USD as it will give traders more reasons to think the Fed will continue on its quest to taper the QE purchases. If the figures are released worse than expected, many will think that a pause in tapering will occur for the Fed to analyze more data ahead of altering policy.

eurusd daily

Short term resistance – 1.3900

Short term support – 1.3750-1.3800

Looking for momentum to pick up on a break of 1.3900-1.4000

 

Alex Kazmarck of Trade Leader SpotEuro presents analysis of the EUR/USD

Update

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.

Technicals

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

Trade Leader Alex Kazmarck of SpotEuro gives an update on the Euro:

Emerging markets have shaken things up quite a bit over the last few days. The EM currencies have been sliding and Central Banks stepped in to support their currencies by raising interest rates to fight capital outflows. This activity has been blamed on the US Federal Reserve and its quantitative easing activity and its recently begun tapering program as investor expectations have shifted from a slowing China to a growing US.

Euro Update and Outlook

With liquidity in the euro-zone financial system drying up as the banks have paid back the emergency LTRO loans from 2011 and 2012, euro area CPI remaining below 1% and most notably Germany’s CPI m/m coming in at a -0.6% vs. -0.4% estimated today, the euro is beginning to feel the pressure and has recently continued what seems to be as the next major leg to the downside against the US Dollar. European Central Bank President Mario Draghi has signaled that he is ready to act if needed and with this macro backdrop occurring in the emerging markets and the recent equity sell-off, he will most likely act sooner rather than later, further putting pressure on the euro.

As mentioned in my last analysis of the euro, the uptrend from July of 2013 has been broken to the downside following the December ECB meeting. The 1.3500 level is now under pressure and once broken, the next level of support will be 1.3300 and 1.3200, which correspond to the 50% and 62% retracement levels from the July-December 2013 highs. Other technical indicators are pointing to a continuation to the downside but the price action and correlation in other markets (equity, USD index, and gold/silver) are confirming that investors have turned on their ‘risk-off’ investment mentality and will now seek safer alternatives during this time of market correction, which has been spoken about for a long time. There are only a few things that may alter the current course and the Fed pausing its tapering program if economic data disappoints during the next few weeks will be the main catalyst for a potential reversal. Resistance is now between 1.3700 and 1.3730, last weeks’ highs and the 1.3800 level will need to be broken in order to have bullish continuation. At current levels, the risk/reward is favored toward the downside and I suspect momentum picking up.

Technicals

All daily techs are sliding. MACD has turned negative and is now looking to cross to continue a move lower; RSI has broken below 50 again and is picking up speed; the ‘trend’ oscillator has just crossed lower; notably, the pair trading below the 50 and 100 day EMA with the latter beginning to smooth out and turn lower over the next few days. The 200 day SMA is now at 1.3375 and will most likely be at 1.3400 by the time price reaches that level. At that point I will look for consolidation prior to a break lower.

My thoughts.

Volatility is sure to pick up and I would not suspect the downwards movement to be without any pullbacks. As I continue to see a dollar rally across the board, JPY aside, I am looking to enter on support breaks and pullbacks, while looking for ECB and FOMC guidance to drive the longer term direction. Risk-off price action should continue to drive the markets in the near-term and capitulation may occur given the right sequence of events. Buying the euro on dips could be a dangerous strategy which I will be sure to avoid as the problems that plagued the euro area in 2012 and 2013 could soon return.

Short term resistance – 1.3700-1.3800

Short term support – 1.3500

Looking for momentum to pick up on a break of 1.3500

Recap

When I last wrote about my expectations for 2014, I laid out some ideas on where to see the EUR/USD exchange rate during the next few weeks, saying the top will at the 1.38 level. Less than a few hours later, on December 27th, 2013, the euro soared higher by 1.5%, breaking through 1.3800 and almost reaching 1.3900 before closing back below 1.3800; this was due to low liquidity and in this case the wick higher can be ruled out of our analysis. The market remained calm during the final days of 2013 and the rate was not able to close but one pip above the figure. As anticipated in the last analysis, the euro retreated from the highs set in late December to begin trading the first few days down 2.2 per cent.

Fundamental

There was plenty of economic data released out of the Eurozone and the US along with the ECB rate announcement and Draghi’s press conference, along with Non-Farm Payrolls out of the US. While Draghi continued to reiterate the extended period of low rates, low inflation and that all possible instruments will be used if the situation deteriorated, he denied the possibility of the Eurozone slipping into deflation. From these comments, I think inflation within the EZ will remain a very hot topic to follow and any further signs of lower inflationary figures the euro could come under pressure.

The US market was surprised early this morning by the release of weaker than expected non-farm payrolls. While most expected a figure near 200k, a surprising 74k jobs were added with the previous monthly figure revised upwards by 38k. The unemployment rate, however, was much lower than anticipated. The figure came in at 6.7% as opposed to the 7.0% estimated. This mixed bag of news created quite a volatile state during the first few minutes with the USD broadly lower against all of the majors. Some analysts are pointing to weather being a factor for the lower NFP figure while the decline in labor force participation rate contributing to the lower unemployment rate. What’s important is that the next FOMC meeting on January 29-30 will be held without a press conference. If economic data throughout the month continues to underperform, I expect the FOMC to hold QE steady and possibly lower the purchases by another $10 billion during the March 19-20 meeting.

Technical Analysis

With the dollar showing gains during the last 10 days, I think it’s safe to say that we should see some consolidation ahead of further gains. The pair is currently testing support at the lower end of the rising channel (1.3580) with 1.3800 remaining a key figure of resistance. A daily close below 1.3580 should signal a further slide to 1.3400, the 200 day EMA.

Short term resistance should be near 1.3650-1.3705 (currently 1.3442), the latter being previous support that was broken once the rally above 1.3800 failed to hold. I don’t expect gains above 1.3700 at this time and prefer to sell at those levels.

Longer term, I still favor the USD and a break below 1.3400 should confirm this analysis to the 1.300 figure before further consolidation. To the upside, only a break and close above 1.3800 would undermine my position.

Summary

Today’s movements have been volatile and another day of trading should provide better analysis of where the market is heading. Still favoring the short EUR/USD trade with the 1.3800 level as playing a key pivotal resistance level. Currently looking for dollar weakness to consolidate previous gains, especially seen on the DXY (dollar index). A break below 1.3580 should provide further selling to the 1.3400 level at which point I expect a break to cause a much larger drop, targeting 1.30-1.3100 level.

Short term resistance – 1.3650-1.3700

Short term support – 1.3580-1.3600