At a glance: Recovery seen as unsustainable
Better than expected industrial production figures in European periphery-countries and hopes of additional support via this weekends EU summit have provided a positive market sentiment in the ongoing recovery. But looking at the technical picture across asset classes, this recovery appears to be a countertrend move only within a much broader risk consolidation. That said the setback risk for risk markets, the EUR and high beta currencies remains particularly high in the coming 1 to 2 weeks as the first leg of a usually 3-step countertrend move seems to be complete or very close to completion. A break below key-Fib.-support at 1.3659 (minor 38.2 %) in EUR/USD or equivalent below the last intra-day lows at 1191 in the S&P 500 are required though, to confirm that the 2nd leg down of this 3-step recovery is on its way. Potential targets for such declines are the internal 50 % and 76.4 % retracements of the preceding advances, which projects 1.3531 and 1.3328 in EUR/USD and 1154 as well as 1112 in the S&P 500. In case politics would provide the so-called “Bazooka” over the weekend though, extensions up to 1.3969 (pivot) or to 1.4074/85 (pivot/200 day M A) in EUR/USD or to 1249/58 (pivots) and 1271/75 (weekly neckline/200 day MA) in the S&P 500 can’t be excluded yet. But given that markets have already discounted a lot of it in the last 2 weeks, the disappointment or the sell-the-fact-effect seem to be just around the comer. As for EUR/GBP, the risk of missing a sell-off and test of key-support at 0.8474 has increased with yesterday’s reversal.
° Short 2 units EUR/HUF from 298.65, targets 271 & 265, stop at 308
° Short 2 units EUR/MXN from 18.4990, target 15.2800, stop at 19.5000
° Long 4 units USD/CZK from avg. 17.255, target 19.02, stop at 16.50
° Short 4 units EUR/INR from avg. 64.90, targets 60.50 & 58.50, stop at 69.00
° Short 2 units PLN/HUF from avg. 68.604, target 64.00, stop at 69.15
EUR/USD hourly – In Ichimoku-terms the market remains in negative territory
° Yesterday’s failure of the red lagging line to produce two consecutive hourly closes above the cloud (currently at 1.3820) leave the market in a highly vulnerable setup and Fib.-support at 1.3659 (minor 38.2 %) at risk.
° Above 1.3659 though, 1.3969 (pivot) and 1.4074/85 (pivot/200 day MA) remain in focus, whereas below, 1.3531 & 1.3328 (50/76.4 %) would be challenged.
GBP/USD hourly – The latest rebound has only delayed an expected sell-off
° Yesterday’s swift reversal up has re-opened the possibility of extending the latest recovery for a re-test of 1.5999 (weekly trend), but as long as the latter is not broken the big picture is negative.
° A break below 1.5632 (last low) would reconfirm that and would call for a deeper setback to 1.5563 (50 %) and to the main T-junction at 1.5409 (int. 76.4 %).
EUR/GBP hourly – Renewed failure to clear 0.8802 is still calling for a deeper setback to 0.8474 or to 0.8307
° Another rejection at key-resistance at 0.8802 (int. 76.4 %) has certainly increased the sell-off risk yesterday so that it would only take a break below the last intra-day low at 0.8688 to receive a fresh sell-signal.
° Such a break would call for an immediate test of 0.8593/87 (minor 76.4 %/pivot), but only below the latter would confirm a deeper setback and test of key-Fib.-supports at 0.8474 and at 0.8307 (76.4 % on 2 scales).
° To on the other hand escape this threat, it takes a decisive hourly close above 0.8802.
EUR/CHF daily – The market has reached its major T-junctions between 1.2475 and 1.2650
° Having seen a tremendous rally from the 1.0068 low in August the market has now reached its key-Fib.-resistance barrier between 1.2475 and 1.2650 (int. 38.2 % on 2 scales), where sellers would normally re-enter to bet on a missing 5th wave decline.
° Given the good risk-reward and the fact that the SNB would potentially allow a setback to 1.2091/00 (daily breakout line/intervention point) without intervening, it is definitely worth a consideration.
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J.P.Morgan
Global FX Strategy