FX Technical Highlights: EUR trying for trend reversal in places
Head of FX Strategy
Summary: We have a potentially bullish reversal in place here for EURUSD and other euro pairs, awaiting further confirmation next week. Elsewhere, the broader USD status faces an interesting test next week as the USD finds itself on its back foot ahead of next Wednesday’s FOMC meeting.
A few highlighted charts ahead of next week’s action.
EURUSD – a reversal?
A very smart daily and likely weekly reversal for EURUSD if we close here around or north of 1.1100 (the intraday high so far today exactly at that 38.2% Fibo retracement. We discussed the drivers of the euro comeback in today’s FX Update. As for the technical situation, EURUSD has been a muddle for some time, but the local bullish reversal has tactical implications for further upside toward the next important area around 1.1200-50 if the price action sticks into early next week. A more robust signal for a structural shift higher in the outlook requires a strong pull into 1.1400.
EURCHF – also reversing?
The euro strength was broad and the long beleaguered EURCHF looks potentially primed for a stronger rebound from here as well if it can hold the post-ECB reaction. The 1.100 level is the next important psychological line in the sand for the pair in looking higher, although the 38.2% retracement coincides with an interesting prior chart point and local low around 1.1065.
EURSEK – a different story
EURSEK has looked heavy this week. Why does EURSEK behave so differently from EURUSD and EURCHF, for example? The short answer is that SEK tends to be positively risk-correlated and correlated with economic strength in its export markets, especially the rest of Europe. On that note, if the ECB is effectively done what it can at this after this week’s meeting and Draghi is right that “it is time for fiscal policy to take charge”, Sweden stands to gain from a switch to a fiscal focus. As for the technical focus, the bears saw an encouraging rejection of the spike attempt back higher after a very weak CPI print earlier this week, but the pair really needs to take out the 10.60 area to open up for the range toward 10.50-40. On the weekly EURSEK below, note the MACD rolling over and its divergence from the prior top. EURSEK an interesting one to track over the next few weeks for a possibly sea change in the trend.
AUDUSD weekly – still needs more to reverse the downtrend
AUDUSD has continued to dribble higher over the last couple of weeks on strong risk appetite and on the hopes that the US-China trade relationship is not beyond saving. The reversal has taken the price action up through the prior low, but the more important reversal signal doesn’t arrive until we have seen a rally through the important Fibo retracement levels like the 61.8% Fibo of the last sell-off wave around 0.6927 and even into 0.7000. A move of this magnitude (into 0.7000+) would suggest that the long standing and rather sluggish down-trend since early 2018 has been neutralized – until then, we’re in limbo.
AUDNZD – continuation late this week
After a period of shallow consolidation, AUDNZD is following through higher to close the week – entering territory it hasn’t seen in 10 months. The next major chart area really doesn’t come in until the 1.1175 area and even higher to 1.1300+, which has defined the range since 2014. To get toward the latter level might require a strong fundamental catalyst.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.