EURUSD v Debt crisis

Over the past couple of weeks, with the latest leg of the on-going European Debt crisis hotting up, I have heard from a number of traders telling me that the EURUSD is about to collapse, a view which I must admit I have had some sympathy to. However, despite the market throwing the proverbial kitchen sink at the troubled Euro, it has once again seemed to defy the wishes of many and shown remarkable resilience.

I decided to see whether there has been a decent visible' correlation between heightened European Debt fears or not over the past year.  The chart below, shows the EURUSD (top), versus Spanish 10 Year government bond yields (bottom). - What seems apparent is a lack of any visible correlation between panics on Spanish debt (yields rising) and the value of the EUR versus the USD over the past year. -  During the summer panic the EURUSD remained sidelined in the low 1.40s, during the October - December Panic the EURUSD started and finished in the low 1.30s, but did spike up to over 1.4000. It would seem that the damage to the EURUSD tends if anything to follow in the wake of action taken to allay the panic. The current panic, whether it is over or not, does seem to be following along similar lines so far, with the currency remaining resilient just above 1.3000.

EURUSD – Update: This week could be a key turning point.

Yesterday’s FOMC release was the catalyst for a sharp fall in the EURUSD, taking it down from a day’s high of 1.3368 to a low of 1.3213. However there is a possibility that yesterday's move carries greater significance longer-term, and could be the early stages of a more significant turning point in the EURUSD towards a more bearish trend.  

Two weeks ago I posted a rather speculative article (what article is not speculative when forecasting markets!) about the EURUSD which I termed ‘Clash of the wedges’ (this can be seen here).  This article favoured a move towards 1.34/35 which would then be a pivotal zone, with the favoured move back lower from there, and possibly much lower if it could start breakin through 1.3000.  

This update adds the weekly chart of the EURUSD to the previous analysis. As you can see this has made a rejection of the upper line of the major EURUSD downtrend in the past week.  I feel that the scenario is starting to favour the downside again, in fact it seems that the fundamental and technical picture may be starting to align - bearishly. A clear break through the recent low at 1.3134 would increase the odds this process is underway, with a meaningful break through 1.3000 hinting at much lower levels over the medium term. The alternate view for upside potential is not completely written-off yet, but I feel that the tide is turning strongly against this option, which would require a solid break through the upper trend-line at 1.3380 to bring this back into play. 

EURUSD - CLASH of Wedges + Some futher observations on EURAUD, SP500, US 10 YEAR, USDJPY..

EURUSD FX
A couple of years ago I wrote about what I termed 'The clash of the wedges' on the SP500, the post can be seen here. We seem to have another smaller scale version of a clash of the wedges on the EURUSD. - Just for the record 'Wedges' are subjective patterns which usually indicate a temporary interruptions of the previous price trend, they can appear at terminations of trend, and can also appear to be occurring at the onset of new trends before the wedge actually morphs into a new trend. Technical analysts see a 'breakout' of a wedge pattern as either bullish (on a breakout above the upper line) or bearish (on a breakout below the lower line).

I have noticed a number of occasions in the past when the breakout of a wedge takes the form of a new wedge, thus evoking a 'clash of the wedges'. One would normally expect the outcome to favour the major wedge, though this is not always the case as can be seen on the lower of the two examples below. I have produced a chart showing the current EURUSD wedges and some further charts below highlighting a couple of previous examples each with a different outcome. - In the first example the major wedge dominated, though not before the minor wedge had put in a strong showing, and in the second case the minor wedge overcame the major wedge and emerged dominant. - At this stage, I would favour slightly the major wedge, to emerge strongest but it is certainty not a given, and in the meantime, there is every chance the minor wedge pushes the EURUSD back towards the recent highs around 1.34/1.35. - As I said I would slightly favour a re-emergence of the downtrend from there, however a solid break through the 1.35 highs is likely to favour further EURUSD strength possible towards 1.4000.

SOME FURTHER OBSERVATIONS AND UPDATES.

EURAUD FX - DIAMOND PATTERN UPDATE:  This may have made a breakout of thIs basing pattern today, though given my own antipathy to these formations (See post here) I would still heed caution on this.

US 10 YEAR NOTE FUTURES: Similar emergent price behaviour over the past years to EURUSD in 2009.(See below). If this continues to unfold in a similar fashion, we may soon some period of consolidation, before further significant losses emerge int he months ahead.

 

SP500: Finally, my recent comparisons of SP500 rallies of late, which hinted at possible top in early-March proved to be somewhat wide of the mark.- Which goes to show how one should always treat comparisons with previous behaviour somewhat cautiously. - Which ironically leads me onto some comparisons with previous behaviour on the SP500. - A couple of weeks ago the SP500 produced a weekly 'Hanging-Man' candle, the chart below shows a number of these patterns emerging after some sustained weekly rallies. In the highlighted cases the hanging man was followed by further strong gains usually for another couple of weeks, followed then by some fairly wide-ranging consolidations back in all cases to the top of the 'Hanging-Man' candle where support kicked in. - In this case, were this to occur again, then the top of the 'Hanging-Man' candles would offer good support around about 1370. - Note, these previous consolidations were merely resting places for the rallies to re-charge themselves for further gains later on. 

 

USDJPY FX:  Last but not least the USDJPY, I highlighted in a post a couple of weeks the significance of a close over the 95 Week SMA (See post here). Since then it has continued to solidify these gains. I have updated the USDJPY chart below to show activity since that breakout. - If previous break performance is to be echoed, then I believe in the next couple of week, we may see a re-test of the moving average. This could bring USDJPY back down to 81.00-81.30, where support/new buyers would be expected to hold it before further significant gains emerge over the course of this year, quite possibly carrying this much higher into the 90s at least. _any significant moves below 81.00 on a sustained basis may cause me to question the assertion of further USDJPY strength.

Finally bringing all this together: The outlook for T-Notes appears to suggest further losses in months ahead, the SP500 further gains, and the USDJPY further gains, however all appear to be close to a period of consolidation of recent moves, thus I would be on the watch out for some corrective/consolidation activity on all these markets over the next few weeks.

EURUSD and EURAUD appears to be un-synched a little from these risk asset classes of late and following their own direction. EURUSD may see some further gains towards 1.34/35, however I think this zone may be pivotal, with my current preference for the EURUSD waekness to re-assert itself. EURAUD may be making a significant base, but I remain cautious as to whether to trust this right now. 

The 'Trader,Trading & Risk Psychology' Blog is part of 'BGT Edge' a trader and investor coaching, development and education company. - To know more about how we can help improve your Trading or Investing Performance from a psychological or behavioural perspective, and how it could help drive you towards greater 'trading success' please email me on sgoldstein@bgtedge.com or check out my website www.bgtedge.com.

EURUSD TRIANGLE PATTERN.

I know this blog is now about the psychology of trading, however I can never really tear myself away from trading views full-stop. And today I will be posting my Technical Analysis view of the current EURUSD market in relation to the triangle pattern forming on the EURUSD. (I could of course talk about this from a psychological perspective, but I'm not I'm merely going to try and point out what I think is happening and may happen. : Please see comments below charts:-

EURUSD - Possibly change in direction?.

The EURUSD bullish 'Cup and Handle' pattern, which has been very much in my focus the past few weeks, is looking rather troubled. The breakout last week stalled quickly at the weekly resistance line which connects weekly closing highs from summer 2008, late 2009, and the high in late 2010. (See upper chart below). This morning the market has broken below the 1.3850/60 breakout level, (so far this is only a minor breach), however the longer it is maintained, and the deeper it moves, the greater the likelihood that this is a significant failure. Further to that, there is rising trend-line support just below current levels around 1.3805, a breakthrough here combined with the Bearish Divergence on the daily RSI and MACD, could spell the death-knell for the 'Cup and Handle' pattern. (Though, just as a caveat, the breakout of this type of formation, is often a tortured affairs, and a dip like this, followed by a 'screw-you' rally, is not untypical). - If however, this does turn out to be a failed 'Cup and Handle' pattern, the failure could have serious consequences for a much deeper pullback to the low 1.3000s.

Bund Update - Re Cup and Handle pattern.

This morning has also seen a failure in the bearish Bund 'Cup and Handle' pattern, I highlighted a couple of days back. This could also be significant in the short-term, with a risk of a move back up to trend-line resistance around 122.85/90.

MID-DAY UPDATE. 
EURUSD languishing above 1.3805, and below 1.3850.   Not much conclusion yet...
Bund failed to hold the morning's gains, and is close to 121.80 again. The original bearish Cup and Handle scenario is still a possibility on the Bund, as is the failed C and H at this stage. Right now, the inability to hold over 122.00 so far is not encouraging, but lets see where subsequent price action heads.

EURUSD 'CUP + HANDLE' PATTERN UPDATE.

The large Cup and Handle pattern (See chart below) which I have been watching form over recent months on the EURUSD appears to have completed with the sharp move up during the latter stages of last week. Now is the crucial stage for this, does it shoot straight up towards the measured target around the high 1.4000s, or at least some way towards that? Or does it come back and re-test the break at 1.3860 (Or even overshoot)? - I favour the likelihood of a re-test of the break at some point, this would actually be the more healthy option for continued strength.

One has to also consider the possibility of this being a false break prior to a sharp correction (No one ever said this was easy). Critical resistance is being approached on the longer-term patterns. 1.4040/50 is a daily closing resistance (See posting from Feb 28) and 1.4285 is the prior high in the downtrend since 2008, both these levels could be key.


Personally I favour the move to the high 1.48s in the next few months, but cannot help thinking we may still see some interesting price action, which has the potential to tease rather than please in the next couple of weeks.

EURUSD - Major Bullish weekly pattern or part of downtrend?

The EURUSD continues to show strength consistent with a potential set-up that I have been highlighting  in recent posts, which has the potential to see EURUSD move higher towards the high 1.4000s. However it has a number of hurdles to overcome along the way, including the resistance which has defined the downtrend pretty much since the top in 2008. This resistance is represented by a line which connects Weekly closing highs through 2008 and 2009 and acted as resistance in late 2010. Over the next couple of weeks this line comes in at 1.4040/1.4055, it will be very interesting to see how price acts at these levels, if it does get there.

In the much bigger picture a clear and sustained break over the 1.4040/50 area would favour strongly a move towards much higher levels in the bigger picture and will support a shorter-term move towards the high 1.4000s. The next chart shows a large Bull-Flag pattern which supports this argument. The other option, is that since 2008 we have been in a downward trend, and that this move back towards 1.4000 is just a rally within the on-going downtrend, with the low 1.40s acting as resistance before this trend re-asserts itself.

One argument which leads me to favour the upside, is the rejection of the breakdown of a 'Head and Shoulder' pattern early last year. Often (but not always) failed Head and Shoulders pattern come back to eventually re-test the high of the pattern.

The chart below shows the much bigger picture. The line emphasised on the above chart is shown as the upper line on the Huge Bull Flag pattern.

There is every chance that the next few weeks will lead to some sort of Bullish or Bearish conclusion.

EURUSD FX

A quick look at the EURUSD. I have no real clue as to where this is heading short-term. Longer-term I believe the upside will win-out, but my conviction on that is not strong and I try to keep as open a mind as possible. 

In the short-term I am watching the area around 1.3240ish to 1.3420ish, I think if there is a reaction here and it can start to rebound at some point, conviction for the upside grows, on the other hand if support at this zone is weak then I guess at a minimum a return to this high 1.20s could be on the cards.