The currency is still nicely correlated to risk appetite and the overall performance in the US equities market. On Monday, we saw a major sell-off in US equities that we believe signaled the start to a resumption of the overriding downtrend. Technically, Monday’s lows in the S&P are viewed as significant, with the move lower taking out the previous weekly lows and ending a sequence of 6 consecutive weekly higher lows.
EUR/USD RALLIES SHOULD BE LIMITED; SELL @1.3200 ON THURSDAY
Techs – Eur/Usd: Wednesday’s bullish outside day has indeed shown some good positive follow through thus far with the market continuing to extend gains since basing out by 1.2885 on Wednesday. From here we see the risks for continued appreciation back towards the 1.3200 area from where a fresh lower top is ideally sought out below 1.3395 (13Apr high) ahead of bear trend resumption. The 1.3200 area offers itself as a formidable resistance point today with a major technical confluence of moving averages and Fibonacci retracements all coinciding at this level. This includes a pending negative cross of the 20-Day SMA with the 100-Day SMA along with the 61.8% retrace of the 1.3395-1.2885 move and the 38.2% retrace of the 1.3740-1.2885 move. Finally, should today’s rally continue, our “Average True Range” (ATR) analysis projects a potential daily high also by 1.3200. Strategy: SELL @1.3200 FOR A 1.2835 OBJECTIVE, STOP @1.3210. Stops to be trailed to cost on a break back below 1.3150. If trade triggers and 1.3150 not broken, position to be closed out at NY close (5pm ET) on Thursday. Recommendation to be removed if not triggered by NY close on Thursday.
Fundamental Catalyst – The currency is still nicely correlated to risk appetite and the overall performance in the US equities market. On Monday, we saw a major sell-off in US equities that we believe signaled the start to a resumption of the overriding downtrend. All bear markets have good rallies with even some of the best rallies coming within bear markets, as evidenced by the past 6 weeks in equities. However, this could be coming to an end now and the risks from here are for renewed equity selling which should translate into more flight to safety USD buying. Technically, Monday’s lows in the S&P are viewed as significant, with the move lower taking out the previous weekly lows and ending a sequence of 6 consecutive weekly higher lows. This is most certainly a bearish development.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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