Learn to Trade – Currency Overview 18th June
Focus on the Euro (EUR/USD)
The last 2 weeks has seen the Euro gradually recover from its multi-year lows around the 1.1900 handle back to 1.2400. This has been aided greatly by the subsiding of fresh bearish news that had been hitting the market on an almost daily occurrence on the run down to the 1.1876 lows.
Thoughts from the trading floor
The technical picture continues to favour the bears in the short-term. The immediate term outlook has shifted however to a neutral to bullish skew. The market has steadily crept higher over the last 2 weeks and is currently sitting around the 1.2400 handle, just below good resistance at 1.2455. A move through this point should then pave the way for a test of strong resistance at the 1.2680-85 level. The short-term outlook for the market hinges on this pivotal level. Interestingly, the market may be in the process of forming a bullish inverse head and shoulders pattern. For this to occur, the Euro must turn lower over the next 2 days and hold probes down to the 1.2150-1.2200 area to form the right shoulder. If this occurs the market should then turn higher targeting the 1.3000 handle.
The last 2 weeks has seen some positive momentum enter risk markets, which has greatly benefitted the Euro. This is almost typical of markets where they will start to almost disregard the bearish news already in the market and steadily recover awaiting either fresh bad news or until after the summer to refocus on the situation at that point. This type of pattern is very similar to what happened during the 2007/2008 credit crunch and other crises previously. Our immediate/short-term bullish call on risk markets, including the Euro, is formed mainly on this basis. However this could be hampered by recent developments from the US, where the macro-economic data has started to dramatically turn lower. Although we have only observed this phenomenon since the start of this month, this may be the “unknown unknown” which spooks the market into a fresh bout of negative sentiment. This type of development had not been priced in to the markets and this is the main reason why equity markets in particular have seen extended moves lower on an intra-day time frame on the back of the bad numbers.
Bull View
The bulls have steadily edged back into favour over the last 2 weeks. They will look for the market to break through the 1.2455 level and target the 1.2680-85 level over the next 2-4 weeks. Bulls will also be keen to look for support around the 1.2150-1.2200 area if the market probes lower over coming days to set up an inverse head and shoulders pattern.
Bear View
The bears will look at the recent creep higher in the Euro as a small recovery as the market sets itself up for an extended drop later on in the year. However they will also look out for the fact that if the US recovery gets derailed, which it is showing signs of this month, then rather than being bearish USD vs. Euro it may instead mean that the world refocuses on all the bad news currently in the market causing the Euro to collapse further.
Futex View
We continue to favour the bears in the medium and long term; however we have turned somewhat bullish in the immediate to short term. We believe that the Euro may look to recover ground to the 1.2600-1.2700 area by the end of the summer before setting itself up for another drop going into the autumn.
Tags: bear, bull, currency, Euro, futex, learn to trade, Macro, technical analysis, USD
