At a glance: Getting ready for a final sell-off
The action on the risk side is still dominating market trends across asset classes and with neckline support being broken in the FTSE 100, the S & P 500 and the DJI, chances of re-testing and exceeding the August lows are very high now. Given the H&S continuation pattern in the S&P 500 for example, this latest break is projecting a decline to 1045 roughly, which is not far from key-support at 1019/11 (50 %/2010 low) and thus providing a strong support zone.
This new low would complete a 5-wave cycle down from the May highs and has therefore good chances to be followed by a broad recovery, which could turn into a nice year-end rally. But for the moment and as long as risk markets have not reached new lows, high beta currencies remain under pressure. This means that EUR/CE3 is expected to extend the latest recovery into key-resistance at 303.87 (int. 76.4 %) in EUR/HUF, to 25.406/452 (last top/weekly trend) in EUR/CZK and to 4.6691 (int. 76.4 %) in EUR/PLN. Particularly the 76.4 % retracement’s would offer a good risk reward to sell into, provided risk markets have reached or are already trading at fresh lows (i.e. S&P 500 below 1101). In terms of EUR/USD, it is now make or break at 1.3351/49 (int. 76.4 %/Fib.-projection) as only the defense of the latter would keep a backdoor open to potentially make a full recovery. It would however take a break above 1.3829/37 (int. 38.2 %/pivot) to get 1.3351/49 out of the danger zone, whereas a break below 1.3351/49 would have very negative implications long-term. As for Cable, there is only support at 1.5296 (Sep. 10 low) left to prevent a straight extension to 1.5054/1.4962 (weekly trend/Fib.-projection).
° Short 4 units EUR/USD from avg. 1.3990 , targets 1.3350 and 1.3120, stop at 1.3850
° Long 4 units USD/CZK from avg. 17.255, target 19.02, stop at 16.50
° Short 2 units EUR/INR from avg. 63.30, adding 2 units at 62.45 on stop, target 55.50 & 52.00, stop at 68.50
° Short 2 units PLN/HUF from avg. 68.604, target 64.00, stop at 68.600
EUR/USD daily – Make or break at 1.3351/49!
° The market has finally launched its attack on the key-T-junction at 1.3351/49 (76.4 %/Fib.-proj.), which can be seen as the last resort for EUR bulls and could trigger a bounce to 1.3829/37.
° A decisive hourly close below (i.e. below 1.3300) would imply that a much broader bear-trend towards 1.2859 (Jan. low), to 1.2600 (76.4 %) and possibly to 1.1876 (2010 low) is underway
GBP/USD daily – 1.5296 only expected to provide temporary support
° The market remains under pressure and has only 1.5296 (Jan. low) left to trigger a bounce and potentially prevent a straight extension to 1.5054/1.4962 (Fib.-proj./w. trend) and to 1.4823-1.4781 (int. 76.4 %/H & S proj.).
° Only a break above 1.5467 (minor 38.2 %) would open the door for a stronger recovery to 1.5759/81 (int. 38.2 %/pivot).
EUR/GBP daily – Below key-resistance between 0.8802/12 and 0.8886/0.8910 the market remains vulnerable
° The latest recovery seems to have run out of steam quickly below the key-resistance zone between 0.8802/07 (int. 76.4 %/daily trend) and 0.8886/0.8910 (last top/ daily Ichimoku-lagging).
° The latter looks massive and only two consecutive daily closes (10pm CET) above would confirm a breakout.
° Below, the market remains vulnerable and would deliver minor sell-signals with breaks below 0.8705 (h. trend), below 0.8670 (last low) and ultimately below 0.8591 (int. 76.4 %).
EUR/AUD hourly – Test of the key-T-junction at 1.3963 indicated
° Given the straight shot up from the 1.2925 low to 1.4264 in August and the fact that the market managed to mark a higher low at 1.2990, chances of performing the C-leg up (a 5-wave pattern) of a broader up-consolidation to at least 1.4342/73 (former highs) are not bad at all.
° This bullish view remains fully intact as long as key-support between 1.3595 and 1.3482 (int. 38.2 %/pivot) is defended, whereas it on the other hand takes a break above 1.3963 (int. 76.4 %) to receive confirmation.
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J.P.Morgan
Global FX Strategy