Learn To Trade Currency Overview 24th June
Focus on the Euro (EUR/USD)
The Euro has pared back much of last week’s gains in the last three days. The blowout top, made on Monday around the 1.2500 handle, was as a result of the Chinese reassuring governments around the world that they intend to gradually transition away from the tight peg that the Renminbi has against the USD. Since then the market has eased back to the 1.2300 handle, although yesterday it made low prints around 1.2200.
Thoughts from the trading floor
The technical picture continues to favour the bears. The currency pair’s failure to sustain the drive higher on Monday has again unnerved the market which pulled back to the 1.2200 handle yesterday. This has been typical of the Euro for much of this year as a failure to sustain buying for even a day has led to sharp reversals. The market failed to reach the key short-term reference point between 1.2600-1.2670. This is also indicative of the bearish nature of the market’s price action. A break below the 1.2150-1.2200 area should then see a test of recent YTD low prints at 1.1876. However, the sharp bounce from yesterday’s lows at 1.2209 has opened a small window of opportunity for the bulls. In doing so, the market may have formed an inverse head and shoulders pattern. Ideally, for bulls, the market should be able to hold the 1.2150-1.2200 area and look to drive higher. A break of the ‘neckline’ (at 1.2464 today) and then the 1.2673 level targets the 1.3500 handle.
The major Euro currency cross that has been a key focus for the markets recently is the Euro vs. the Swiss Franc. The steep downward trend in this market for much of this year has been as a direct consequence of investors buying Swiss Francs; a currency which is regarded as a safe haven. This is in spite of the Swiss National Bank’s programme to intervene in the market to weaken the Franc (this has recently expired). Although general market sentiment has turned bullish over the last 3 weeks, the SNB’s decision to end the intervention programme last week has seen the Euro/Swiss (EUR/CHF) cross continue to trade sharply lower. The price action of this cross has contributed to the selling of risky assets over the course of the week as markets remain jittery and become unnerved very easily. The Euro/USD is considered a risky asset and thus if the Euro/Swiss can look to recover steadily from record lows we would expect a corresponding sharp bid in the Euro/USD. The price action of the Euro/USD cross would seem to support this view, as small intraday rallies in the Euro/CHF have resulted in rather sharp intra-day rallies in the Euro/USD. If we consider the hypothesis that the acceleration lower in Euro/CHF over the last 3 to 4 days has been largely as a result of bullish participants, who were banking on the SNB interventions to drive the market higher, stopping out of longs (as opposed to Swiss Franc buying for safe haven flows), we may be nearing a key low in that particular cross. If this is the case, we may see the Euro/USD stage a good rally which will take it through the inverse head and shoulders neckline.
Bull View
The bulls will be concerned that global risk sentiment has turned lower this week. Bulls will look for the potential inverse head and shoulders pattern as a buying opportunity. If the market can hold above the 1.2150-1.2200 area, then a break of the neckline should follow soon.
Bear View
The bears will look to press their advantage this week. A break below the 1.2150 handle should see the market come under pressure and force another test of recent YTD lows at 1.1876.
Futex View
We favour the bulls this week. If the market can hold above the 1.2150-1.2200 area, in combination with a recovery of the Euro/CHF, we would favour a move to the 1.2500 handle by the end of the month.
Tags: currency, learn to trade, market profile, technical analysis
