EURUSD tests the day’s high at 1.3485

The Merkel/Sarkozy press conference gave the EURUSD a boost higher. The correction off the initial move higher retraced to the midpoint of the Friday/Monday range and the ability to hold the level has the pair back up testing the high at 1.3485. A move above this high is needed to propel the pair higher toward the Thursday high at the 1.3520 level. The 1.3546 was the high on Friday. This level tested resistance channel trendline on the daily chart (see chart below).  The trendline today comes in at the 1.3536 area.  I would expect the area to provide good sellers on a test.

On the downside, if the high for the day cannot be breached at the 1.3485 level, look for sellers/profit takers to enter and the price to test the the 1.3454 level again (50% of the Friday/Monday range).   A break of that level opens the door for further selling.

EUR/USD Continues Bearish Trend to Target Key 1.3000 Support

EUR/USD (daily chart) as of Monday (11/28/2011) has continued its fall down below the key 1.3300 price region, continuing a month-long bearish trend after hitting a high around 1.4250 resistance in late October. This month-long plummet is comparable in slope to the immediately preceding month-long rise that occurred throughout the month of October. Currently, the key downside support target to watch resides around the 1.3150 price region, which was last reached in early October. In the event of a breakdown below this key support area, which would confirm a downtrend continuation, the immediate downside target resides around the psychologically-important 1.3000 support/resistance level.

(Click on chart to enlarge. Forex chart key: price on 1st pane, Stochastics 14,3,3 on 2nd pane; horizontal support/resistance levels in black; uptrend lines in green; downtrend lines in red; 50-period simple moving average (SMA) in orange; 100-period SMA in brown; 200-period SMA in dark blue; Fibonacci levels in magenta.)

James Chen, CTA, CMT
Director of Technical Research and Education
FXDD

EURUSD off lows but approaches intraday resistance area

The EURUSD is off the lows reached at 1.32118 but is up testing the intraday resistance area at the 1.3257 to 1.3267 area. The 1.3257 was an earlier high. The 1.3264 level is the 38.2% of the days range and the 1.3267 is the 100 bar MA on the 5 minute chart (blue line in the chart above).  There should be sellers against the level, with the potential for more upside momentum on a break.

The EURUSD has issues with the debt problems. Next week there are scheduled a number of debt auctions. There is an apprehension for investors to invest in Euro debt. The failure of the German auction earlier this week highlights that idea. 

On the other side is the EU, ECB, IMF who know of the issues and are there to solve the problems. The EURCHF chatter may also provide some support (buying of that pair may come via the EURUSD).  Weekends provide time to regroup and the weekend is here.  The next upside targets would be the 1.3280 which is the midpoint of the days range. 

So far, the fundamental solutions that are talked about turn out to be not doable (or have problems at least). The EFSF was going to leverage to over a trillion, then a trillion, now much less.  There is chatter about privatization not working and/or a reworking via a change in the EU treaty. There is once again talk of selling of hard assets in Italy and Greece as a way to lower debt levels.  Who is going to buy?  I guess that is the theme. Who is going to buy whether it be debt or assets.

Auctions scheduled for next week:

Monday: Italy 750 million  2023 bonds
                   France 4.5B 91 day bills, 1b 167 day bills, 1.5B 322 day bills
Tuesday: Italy 3.5B 2014 bonds, 2.5B 2022 bonds, 2B 2020 Bonds
Thursday: Spain 2017 bonds, 2016 bonds, 2015 bonds
                      France 2041 bonds, 2026 bonds, 2021 and 2017 bonds

Unrealistic to expect EFSF to leverage up to 1 trillion.

The report is Asia (read China)  is very reluctant to invest in the EFSF Special Investment Vehicle. A more realistic number would be double according to sources.The EURUSD is moving back and forth as EURCHF talk and the reluctance to buy the EURO has the pair trading violently.

EURUSD moves toward channel trend line support

The EURUSD has moved to new lows for the trading day (low reached 1.3324). The 1.3319 level was the low from yesterday. The 1.3304 and 1.3307 levels are trendline support on both the hourly and the daily charts (see charts).  Keep these levels in mind as the next key targets for the pair on a new probe to the downside.

On the topside now, the close from yesterday comes in at the 1.3341. This is close resistance for the pair now. A move back above this level could take the pair up to the 1.3354 area. A move above this level, would not be welcomed by the bears.  Look for sellers against this level (Yellow area in the chart below). 

EURUSD pushes sharply higher. Stops triggered

The EURUSD broke through the 1.3483 level and it ignited a surge to the upside (see prior post). There is no fundamental story to the move (that I can see at least). From a technica perspective, the price action pushed through the 200 bar MA on the 5 minute chart (green line) and is now pushing toward the high of the day at the 1.3537 level.  There is a number of high levels near that high from Friday and today which should solicit profit taking.  However, with the momemtum move, it may be catching some shorts off guard. So be aware.

On the downside now, watch 1.3511 for close support and below that the 1.3498 level which is the 38.2% of the last leg higher in the pair. Holding the 38.2% suggests some buying support.  If the price falls below that level, the price has additional support at the 1.34899 level (200 bar MA and 50% of the move higher) and this will be a key level to hold for bulls. A break below and the move higher was simply illiquid markets. Holding the support should not be ignored.

Italian Bond Yields and the EURUSD

There is a lot of talk that as the Italian bond yields move, so does the EURUSD  – only in the opposite direction.   Today the yield of the Italian bond fell from above 6.80% to 6.62% at the start of the day, and then  rebounded back higher toward the 7% level. The current yield is at 6.922. 

Why the volatility? There are basically two forces at work. One is that there is the desire to lessen the number of bonds on the books of banks – especially of those who’s countries are deemed risky. Italy has ousted their Prime Minister, has a new technocrat PM in Mario Monti (not a political member) in place with no support from either party in his cabinet.  It is a grand experiment which has bond holders skeptical.   Holders of sovereign debt have been burned with Ireland, Portugal, Greece and now Italy seems to be next in line.  Whether it happens or not is not of a concern to the bond holders. The fact is that it may happen,  This is more the concern in a time where preserving and raising new capital is THE FOCUS.  Why risk capital in a risky country’s bonds?   

On the other side is the ECB. The central bank has been buying Italian debt in the market as a way to counter the selling taking place. The purchases typically cause a lowering of yields (rise in price).  When the ECB enters the market, they deal directly with banks.  Very few actually see it.  The only clue is the scrambling that takes place as the spaghetti gets shuffled around the plate from A Bank to B Bank to C Bank to D Bank.  Eventually, the ECB buying stops, the yield bottoms and the natural selling starts again.  Needless to say, the markets are not normal while this goes on.

As the chart above shows there is some correlation between the 5 year yield and the EURUSD but it is not perfect.  Toward the beginning of the day the EURUSD was moving down, while the bond yield was moving sideways.  Then bond yields started to move higher  and the EURUSD in this case continued its move lower.

Later, the EURUSD bottomed and started to move higher, while yields were continuing to the peak.

Since the peak in the 5 year yields, the action in the debt instrument has been sideways to down. The EURUSD meanwhile has been more up and down. 

Can a retail trader benefit from the Italian yield information?  Maybe.   There is some correlation, but I like to argue that if trading EURUSD by watching another instrument like bond yields, where do you know you are wrong?  The linkage can break and this can lead to a large loss on your EURUSD position. I still believe that following the technical clues from the EURUSD itself is the safest and most logical way to trade these markets. 

What is more certain perhaps, is the volatility that may grip the market while the artificial pegging of yields take place at the same time as a fundamental selling interest by the market in general. This increases risk in the market. With increased risk, traders should be sure to define risk and perhaps lower position sizes to account for the extra volatility.  Technical levels will still give clues. If there is buying of the bonds and the EURUSD traders likes it, the price will move higher and will likely break above Moving average lines or trendlines.    If selling takes place and the EURUSD traders don’t like it, the price will move lower and break below trendlines and Moving average lines.   

That may frustrate and force a more “trading” market, but that is what happens in a market that is not a true market anymore but one that is influenced by the artificial pegging of rates.  Is it better or worse given the current fundamental backdrop?  We willl never know as long as market forces are not in play anymore.

Euro Makes New November Lows

In a relatively uneventful Asian session, lacking any significant data we have seen the EURUSD pair make new November lows, currently trading in the middle of the 1.34 handle. The pair is currently trading on the very bottom of the 4hr Bollinger Band and from the chart below we see that trendlines have acted as a strong indicator over the past few weeks and the break lower leaves a large area to fill which could be done very abruptly toward early October lows.

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