FX Update: EURUSD in correction mode after poke at 1.2000 FX Update: EURUSD in correction mode after poke at 1.2000 FX Update: EURUSD in correction mode after poke at 1.2000

FX Update: EURUSD in correction mode after poke at 1.2000

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  Summary: ECB Chief Economist Lane talking up currency effects in ECB decision making and a record weak EU core CPI print yesterday have the euro on the defensive. Elsewhere, is the sterling rally legit or set to quit after a squeeze on shorts? And AUDNZD is nearing a pivot level on the chart for establishing whether the bull trend holds.

Trading focus:

EUR and EURUSD on the defensive after 1.2000 touch: the magic 1.2000 level was ever-so briefly touched yesterday before EURUSD closed back lower and followed through below 1.1900 in today’s trade. ECB Chief Economist lane took pains to point out that the strong EURUSD is a factor in their modeling just as EURUSD was pushing into the 1.2000 area and then we also saw that record low year-on-year core August CPI inflation reading yesterday at 0.4%, far worse than expected. One thing that could quickly right the ship for the euro even if the ECB does try to pull out the stops next week (more QE really matter?) is that European risk assets may enthuse to the top being taken off the euro rally – major European indices have been very rangebound relative to the strength in the US, but some of them are threatening resistance again in today’s very strong session.

The question for traders is whether this is a brief one-off or an opportunity for a deeper consolidation – testing the 1.1750-1.1700 pivot zone or something on a larger scale. I have been in favour of a consolidation of decent magnitude, but most USD pairs have failed to post anything resembling one, so confidence is merely fair for a bearish trade, given the prior failure of what seem excellent pattern reversal setups (like yesterday’s shooting star candlestick after touching the cycle highs) to provide any follow through lower. A close below 1.1850 would take us down through the local rally wave’s 61.8% retracement, but the bigger test looks like the 1.1750+ recent lows and then the 1.1700 area. Note that a mere 38.2% retracement of the rally sequence from the late June consolidation low (that low almost a perfect 38.2% test of the rally off the early May low, by the way), is at 1.1688, while the 38.2% retracement of the entire rally off the March panic low comes in just below 1.1500, as does the 61.8% retracement of the rally wave from the June low.  What to trade? Tactically, I like standing aside here or maintaining shorts on this break below 1.1900 and then watching how the price action shapes up around 1.1700 if we get down there.

Source: Saxo Group

AUD and NZD working on the night moves
We saw diverging fortunes for the AUD and NZD overnight after Australia’s Q2 GDP came in at a weaker than expected -7.0% QoQ vs. -6.0% expected after AUDUSD had managed to scrape to new highs for the cycle above 0.7400. The subsequent consolidation looks innocuous enough, as the pair would need to work below 0.7250 to derail the late rally – something that would likely also require a distinct change of mood in equities and not least commodities markets. Testing the long case around 0.7310 (38.2% of recent wave) will be tempting with stops below 0.7240 (61.8% of recent wave)

The kiwi (NZD) on the other hand, powered higher on the RBNZ’s Orr oddly pronouncing no concern on the exchange rate, something that the central bank has mentioned before as a major factor in policy considerations and has also put its intervention money where its mouth is on occasion. Orr also talked up the still dovish tilt of the central bank and apparent readiness to ease further – if NZD doesn’t stop rising right here, this will be soon indeed. In relative strength terms, AUDNZD is the one to watch and needs to find support perhaps head of 1.0800 to avoid a retest back into the 1.0600 and lower area.

Another franc fakeout?
The franc had one of those days that it has had on several occasions over the last several weeks – a huge one day ramp that struggles to hold into the next day. It is impossible to gin up a narrative for these moves except to perhaps attribute them to major profit taking (and possible SNB intervention?) in USDCHF at 0.9000 just as EURUSD hit 1.2000 yesterday. If the EURCHF move fades deeply back below 1.0800 then we can likely sit on our hands for a time and keep any view on CHF to the side for now. CHF volatility most likely picks up in a full-on recovery mode, with higher yields – not what we’ve seen in recent days.

GBP rally too legit to quit?
Finally, we continue to watch sterling here as EURGBP has managed a solid break below the prior range lows around 0.8900, which could open up for the 0.8700 zone. Some of this is likely inspired more by Euro negativity in the wake of yesterday’s CPI as there is little UK news flow to celebrate. As for GBPUSD – the 1.3500 level is a massive chart point and trend support starts at 1.3250. Would like something to grab on to for arguing for higher sterling, but sometimes one gets the strongest portion of a directional move before there is any clear attribution.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.