At a glance: Smile because it could be worse…
Market participants were wondering yesterday, why risk markets are selling off that hard as there was no obvious reason to argue for such a massive sell-off. This argument is obviously strictly following the idea that markets have to be reasonable at all times and neglects the idea that it is sentiment that drives markets in the first place. By focusing on the latter this latest sell-off came as no surprise at all, as the preceding rally had to be perceived as a correction of the oversold market conditions only and incorporating an Elliott wave count, a very high probability was given that we are missing minor new lows to complete bigger 5-wave cycles down. Once this has been achieved though, risk markets should be due for another recovery, which might even exceed the last consolidation tops in form of a wave 2 rebound. The EUR has also lost some ground in this risk adverse environment, but would have to break below 1.4202/1.4176 (minor 76.4 %/daily trend) in EUR/USD to enter negative territory. As Cable remains relatively unimpressed by the latest turmoil and hasn’t even scratched Fib.-support at 1.6412 (minor 38.2 %), it was EUR/GBP which took the beating in form of a break below key-support at 0.8703/01 (left shoulder/int. 76.4 %). This is raising an alarm bell, but would still have to be followed by a break below neckline support at 0.8649 to force EUR bulls to surrender. In terms of EUR/CHF the market is a lot more reluctant now in responding to risk woes and has not even tackled key-support between 1.1164 and 1.1059 (pivot/minor 38.2 %) yet. This implies that the upside remains open for a potential extension to 1.1878/92 (d. trend/pivot) or to 1.2289 (int. 38.2 %).
- Short 2 units EUR/USD from 1.4205 , targets 1.3350 and 1.3120, stop at 1.4600
- Long 2 units USD/CZK from 16.85, add 2 units on a break above 17.65, target 19.02, stop at 16.05
- Short 2 units EUR/INR from avg. 63.30, 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 hourly – Range breakdown at 1.4324/1.4293 has neutralized the positive bias
- Having failed once more to close above daily Ichimoku-resistance at 1.4456 the market almost conclusively sold off and broke below a support cluster at 1.4324/1.4293 (pivots/int. 50 %).
- This has certainly neutralized the positive bias, but to really get the bears into the pole position it would take an additional break below 1.4202/1.4176 (int. 76.4 %/daily trend).
GBP/USD hourly – Last man standing
- This market shows a remarkable resilience lately and is not even scratching key-support at 1.6412 (int. 38.2 %) yet.
- That said and provided the latter is defended, it looks possible that the last top at 1.6748 is going to be challenged, whereas a break below 1.6412 would certainly raise the idea of having only overshot 1.6520 (int. 76.4 %).
EUR/GBP daily – Make or break at 0.8649!
- Having broken the first T-junction at 0.8703/01 (left shoulder/int. 76.4 %) yesterday, the previously favored inverted H&S bottoming formation is under serious threat and only the defense of neckline support at 0.8649 would leave a minor chance for the latter to still pan out.
- A break below 0.8649 would end these hopes in favor of a test of the next lower T-zone between 0.8528 and 0.8474 (76.4 % on higher scales).
- If this can’t provide support either, the downside would be wide open towards 0.8285 & 0.8067 (old lows).
EUR/CZK weekly – Break above 24.544/666 required to support a stronger recovery to at least 25.406
- Given the stabilization seen since the beginning of this year and having failed 3 times already to break below the January low at 23.927, prospects of at least launching a recovery into the 25.40/60 handle (old top/weekly Ichimoku-lagging) are very good, particularly looking at the latest upswing.
- For such a recovery to be confirmed though, it takes a break above key-resistance at 24.544/549 (weekly trend/ last daily top) and ultimately above 14.666 (May high).
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J.P.Morgan
Global FX Strategy