Is The Euro Set To Slip Again?

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Once European markets closed yesterday, Treasury yields started to move higher again. The Richmond Fed index was strong, but I’m not sure that’s really the driver. The only data today comes from New Home Sales, likely to be stronger too.

The Treasury sell-off contrasts with the inevitable bid for Bunds in the wake of the terror attacks yesterday and as the Treasury/Bund spread widens to its highest levels of the year, the divergence from EUR/USD becomes more marked. At the very least, this will cap the Euro; perhaps it will be a catalyst for yet another move into the bottom half of the 1.07-1.14 range.

I’m (regularly) tempted to buy USD/JPY and sell EUR/USD but neither is threatening to break out of ranges so there’s no rush.

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[thenews]

EUR/USD Still Unwinding Last Week’s Gains…What’s Next? Many traders are already looking ahead to the holiday weekend, so it’s difficult to expect much volatility from the remainder of this week’s trade, but there’s one key technical formation to keep an eye on both tomorrow and heading into next week.

EUR/USD rocketed higher last week on the back of a more-dovish-than-anticipated FOMC meeting on Wednesday, but since then, the world’s most widely-traded pair has slowly but surely given back most of those gains. Ahead of the Fed meeting, we had noted the tight falling wedge pattern forming on the 4hr chart (see “EUR/USD coiling for a potential big move heading into the Fed meeting” for more), which added fuel to the fundamentally-driven bullish move.

As of writing, there’s another pattern forming on the EUR/USD’s 4hr chart, but this one has a slightly different connotation (not to mention the lack of an obvious fundamental catalyst until midway through next week). Since last Thursday’s high, rates have been consistently edging lower within a near-term bearish channel, and based on the price action alone, the unit shows no signs of breaking this trend any time soon.

That said, the 4hr RSI indicator has recently broke out of the top of its corresponding channel, though that’s partly due to the fact that it’s a bounded oscillator that, by definition, cannot trend in one direction indefinitely. For now, we’re inclined to give the short-term bearish channel a clean bill of health.

Assuming we don’t get any surprise moves tomorrow, one of the biggest questions on FX traders’ minds next week will be “how far will EUR/USD fall?” In our view, last week’s Fed meeting represented a significant change in the central bank’s outlook, and therefore, EUR/USD should logically be trading higher now than it was at the start of the last week. Therefore, we’d favor a bullish breakout and possible move back toward 1.1300 at some point next week (pending economic data, of course).

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