EURUSD has squeezed all the way through 1.3000 and GBPUSD through 1.5300. The longer term outlook hasn’t changed as I merely look for where this consolidation move will take us before we turn around again.
The US rally built on strong US fundamentals was looking increasingly shaky recently with ugly ISM surveys and other data points, but pro-cyclical USD view was mortally wounded with today’s extremely ugly US employment report, which saw the most anaemic payroll growth in nonfarm payrolls since last June. The household employment survey actually showed a strongly negative result, though it tends to be a more volatile number.
Regardless, the disappointment had the USD on the defensive against the heavily shorted European majors. I suspect that this is mostly a positioning squeeze driven by a poor fundamental foundation for the USD rally and the fact that it had perhaps become overbought in places. I don’t see this as driven by any apparent reason at all to go long Europe or the UK based on this week’s CB meetings.
This morning I complained that the very emphatic reversals from yesterday had to be taken with a grain of salt due to the JPY’s incredible movement, possibly somewhat still the case – but today reminds us that it is often best to simply take the simple interpretation regardless of what is going on…
Chart: EURUSD
Minor resistance here at 1.3050 from last Monday. I suspect that EURUSD actually wanted to consolidate sharply back just before Cyprus hit (see circled candle) and we’re nearly back to where we were on the Friday before Cyprus. 1.3000 is a historically magnetic area, so first we need to maintain that level, but beyond here the key Fibo’s are at the 0.38 of 1.3113 and the 0.50 at 1.3225. The 0.618 looks too far away for me to consider at the moment, but let’s see. The key downside supports below 1.300 will be next week’s pivot near 1.2930 (assuming we close today around 1.3015) and then the 1.2880 area 200-day moving average.
Chart: GBPUSD
The setup here is more straightforward from a wave perspective. A 100% extension of the previous wave targets 1.5470 as shown in the chart. A reversal immediately back below 1.5270/50 means the highs are already in. Note the 55-day moving average near today’s highs as an interesting resistance level as well. Basically, I will look for tactical reversal signs from here up to the 1.5470. Anything above that level starts to make the near term bearish outlook uncomfortable.
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