Euro Crosses: Potential for Significant Weakness

[DailyFx]

The Euro crosses look susceptible to weakness; especially the Euro / commodity crosses.









We wrote last week that “the likelihood of the EURGBP forming a major top this month is good. A small 4th wave may be underway. A level that may serve as the ultimate is .82. This is where wave 5 (from .7869) would equal wave 1 (.6535-.6867 in early 2007).” On September 3, the EURGBP peaked at .8187 and the pair has slid lower since. Daily RSI has rolled over from above 70 after sporting divergence with the recent high. This is all evidence of a top.




We wrote last week to “expect the drop from 1.6368 to end below 1.5991 in order to complete a corrective decline from 1.6376. The top of the Fibonacci zone, 1.5850-1.5975, should provide support.” Friday’s low at 1.5810 may be the wave 2 (or B) low. A drop below there would not change the longer term bullish outlook though.




The big picture shows a range playing out as possibly a triangle since 2000. Under this scenario, the pair should be headed lower in wave D of the triangle towards 1.40 over the next number of months.




The EURAUD has been stuck in a contracting range since 2000 as well (triangle). The pair is attempting a bullish breakout. Trading above 1.7834 would signal the breakout. Until then the pair is vulnerable to weakness, potentially all the way back to 1.60 in the coming months in order to complete wave E of the long term triangle.




The EURNZD is vulnerable weakness over the next few months to complete wave E of a triangle that began in 1992. The decline could be significant, wiping out much of the rally from the 2001 low.





Jamie Saettele writes Forex Technicals: The Day Ahead, Monday-Thursday (published at 6 pm EST), Daily Technicals every weekday morning (9 am EST), COT analysis (published Monday mornings), and analysis of currency crosses throughout the week. He is also the author of Sentiment in the Forex Market.



Contact at jsaettele@dailyfx.com