Recurring EURUSD Pattern?
Friday 13th May – European Open saw buying of EURUSD up to highs of 1.4337
Friday 20th May – European Open saw buying of EURUSD up to highs of 1.4427
Both days saw their peak between 8.00-8.15am GMT
Friday 13th May – EURUSD trades lower towards European close, extending losses in New York, before closing around 1.4120.
Friday 20th May – EURUSD trades lower in European afternoon, eventually closing around 1.4155-60.
Asia Monday 16th May – EURUSD opened 1.4120, trading lower to 1.4040
Asia Monday 23rd May – EURUSD opened 1.4130, trading lower to 1.4060
The one difference being that Europe extended the losses on the open this morning, unlike last Monday where it drifted higher from the outset.
NOTE: the losses have been extended by another 20 ticks this morning to 1.4040, the same low as seen by Asia the week previously.
On both previous Friday’s we have seen EURUSD shorts reach their extremes on the week, clearly anticipating “event risk” over the weekend. Will the “events” of this past weekend prove more decisive than the Strauss Kahn “event” of the previous weekend?
The answer could well lie in the amount of overnight Options bought to cover weekend “event risk”. As with so many recent Monday’s, the markets have been tightly constrained by Gamma, leaving us with a very muted market.
1.405 is the critical level now EURUSD.
Sentiments & Views
The “CAUTIOUS” approach to Friday proved a sensible one. Having locked in profit on almost all our positions, we retained just minimal long balances in EURUSD & EURCHF.
– Taking much of our EURUSD profit, and leaving only light long balances enabled us to continue the “buy dips, lighten on rallies” strategy throughout the choppy Friday market. This strategy yielded us further profits before eventually closing longs through 1.4180.
– EURCHF proved less rewarding, buying the dip to 1.2510-20, but seeing no rally whatsoever as stops were run amid talk of large sell order in the market, ultimately closing the position through 1.2480.
– However, the EURCHF move lower did enable us to re-enter long USDCHF positions at our desired 0.8750-60 level, as mentioned Friday morning. Lightening the long at 0.8810-15.
– In addition, USD weakness generally gave us the opportunity to re-enter some of our desired USDJPY long positon on the dip to 81.45-50.
– AUDUSD also saw the “buy dips, lighten on rallies” strategy provide numerous opportunities in the choppy Friday price action, squaring up ahead of the close.
– GBP enjoyed a good day against EUR, and a solid day against USD. Closing longs below 1.6200.
Our “CAUTIOUS” sentiment remains today.
Beware:
– A False Break of 1.4035.A break should confirm lower EURUSD. Trading this level as a Pivot could prove the sensible play.
– Unrealistic expectations. Monday’s have been delivering disappointment consistently.
Core
– Neutral generally, particularly EURUSD. Price action is negative but previous Monday’s suggest caution.
– Remain bullish and Long USDCHF & USDJPY and continue to “buy dips, lighten on rallies”
– Cautiously bullish and long AUDUSD again at these levels.
– GBP neutral against USD, bullish GBP crosses but with caution.
NOTE: As I conclude this piece, EURUSD dips below 1.4035 recovering to 1.4045 after finding bids 1.4020-25 level.
Neither a break, nor a false break at this stage. However,does further urge caution.
UBS Investment Bank