We have been seeing a very strong positive correlation over the past several months between US equity prices and performance in the Euro. Higher equities bode favorable or the Euro, while lower equities imply a stronger USD. As such, Monday’s dramatic selloff in US equities should not be taken lightly with both the DJIA and S&P already taking out the previous weekly lows to end a string of 6 consecutive weekly higher lows.
S&P TAKES OUT PREVIOUS WEEKLY LOWS TO END STRING OF SIX CONSECUTIVE HIGHER LOWS; EXPECTED TO WEIGH ON EUR/USD
Fundamental Catalyst – We have been seeing a very strong positive correlation over the past several months between US equity prices and performance in the Euro. Higher equities bode favorably for the Euro, while lower equities imply a stronger USD. As such, Monday’s dramatic selloff in US equities should not be taken lightly with both the DJIA and S&P already taking out the previous weekly lows. This officially marks an end to six consecutive weekly higher lows in US equities and potentially warns of the onset of bear trend resumption which in turn should weigh heavily on Eur/Usd going forward.
Techs – Eur/Usd: We view Monday’s break back below the 1.3000 level as significant with the move likely signaling a resumption of the broader downtrend in favor of additional weakness over the coming days/weeks to fresh multi year lows below 1.2330. However, trade is expected to remain quite choppy and volatile and selling into overdone intraday rallies is the preferred strategy. Before the breakdown on Monday, the market had been well supported on dips to 1.3090 (10Apr low) and we look for this former support to now act as resistance, offering a formidable entry spot for a playable short trade. Ultimately however, only a break back above 1.3395 would delay the bearish structure. Strategy: SELL @1.3085 FOR A 1.2835 OBJECTIVE, STOP @1.3210. Stops to be trailed to cost on a break back below 1.3035. If trade triggers and 1.3035 not broken, position to be closed out at NY close (5pm ET) on Tuesday. Recommendation to be removed if not triggered by NY close on Tuesday.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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