With 1.3000 giving way in the Asian session on poor data out of China, we have to look at where EURUSD might find support in the coming days.
Yesterday, I suggested that it was a bit surprising that the market so quickly erased the move on the back of the BoJ semi-surprise QE, suggesting that the “post CB triple whammy” and lack of follow through warned of the danger of further correction. The correction yesterday didn’t really get going in the USD crosses, though it certainly did in JPY crosses, but then overnight, the weak flash HSBC Manufacturing PMI for China in September triggered a bigger move stronger in both the USD and the JPY, pushing EURUSD back through 1.30 ahead of today’s Spanish bond auction at 0830 GMT.
Chart: EURUSD
The overnight move begs the question of the next possible correction targets. The first basic target is the 0.382 Fibo of the latest large up-wave that comes in around 1.2915. Another important support area is the 200-day moving average coming in around 1.2830. Below that, the 0.618 retracement looms at 1.2750 and this coincides with a previous major high – so this is the structural reversal level to look out for if the selling deepens.
To the upside, 1.3000 is critical now as a pivot level, so a significant move back through 1.3000 suggests the bulls are regaining the upper hand in the short term and shifts the focus back to the 1.3170 highs.
John J Hardy,
SAXO BANK