Market Analysis

EURUSD: Searching For A Direction?

Those euro bulls who survived both Friday’s sell off in EURUSD and Monday’s renewed dip below 1.1600 will be hoping for better as Tuesday begins and with the prospect of full liquidity returning to North American markets after Monday’s public holidays in both Canada and the United States. But there are no guarantees in foreign exchange and traders will likely be mindful of the possibility that having based just below 1.1600 on both Friday and Monday, stops may now be set just below those points. From a technical perspective IFR has already made the point that “Friday’s low at 1.1585” came in “just above the 1.1569 Fibonacci level,” with 1.1569 representing “a 38.2 per cent retracement of the 1.1301 to 1.1734 August rise.” Below that level 1.1518 represents a Fibonacci retracement of “50 per cent of the same August rise.” With EURUSD again testing below 1.1600 but not below 1.1569 in Europe on Monday, chartists might consider that latter level is acquiring even greater significance. In the very short term the 10-day moving average, which is at 1.1632 Tuesday, might provide some small topside resistance while talk of more than euro 3 billion of expiries (1500h UK time) in the 1.1620-40 area could provide some degree of magnetic attraction. Traders might also wish to keep one eye on  developments in emerging markets. and for any associated risk aversion. While the latter has tended to lend itself to support for ‘safe haven’ currencies such as the JPY and CHF (USDJPY, USDCHF) it has often complicated matters for the euro.  In current circumstances traders might be inclined to rely even more on technical analysis, in which case, that 1.1569 level could become even more important in the short term, just because so many will have it in mind.

by Neal Kimberley, External Currency Analyst.