EUR – Bottom or Consolidation?

EUR – Bottom or Consolidation?

Chart Of The Day

EURUSD found a bid in late New York trade today rising well above the 1.0600 level as the pair continued to find support at the 1.0550 zone. The EUR/USD has now held that ground for more than two weeks but the next 72 hours could prove to be challenging to the pair as it faces two keys tests.

Of course tomorrow the market will be glued to US Non-Farm Payrolls report and if it is as good as we think it will be the euro should sell off strongly in the wake of good US job gains. The market will only become more convinced that the Fed rate hike cycle is now upon us.

Yet even if the NFP prove to be a snoozer, the Italian referendum over the weekend could prove to be the death knell of the single currency. We think than In the near term, the Italian referendum on Senate reform scheduled for December 4th poses the greatest near term risk for EUR/USD. No polls are permitted 15 days ahead of the vote and the last survey showed the No vote firmly ahead. The referendum is aimed at streamlining Italy’s government decisions by reducing the role of the Senate and regional governments. But is now seen as just another policy prescription rammed down the throat of populace by the “elite”. Prime Minister Renzi pledged to quit if the vote is rejected which would create another political crisis in Italy especially as the vote has been viewed as a referendum on EU membership. Italy’s political uncertainty should deter investors from buying euros, because this is no Greece. It’s the third-largest economy in the Eurozone and that means wrenching body blow to the whole EU project.

A break of 1.0550 would be critical for the pair as it would suggest that it could dip below the key 1.0500 support and open the way for ultimate move towards parity.

USDJPY – Consolidation or Bottom?

USDJPY – Consolidation or Bottom?

Chart Of The Day

USDJPY – Consolidation or Bottom?

After slowly grinding lower throughout the week, USD/JPY finally rebounded on Friday. Unfortunately the recovery was shallow with the pair ending the week below 100.50. In the week ahead there’s not much in the way of market moving U.S. data which means we should see sideways to weaker price action in USD/JPY. The selling pressure in the dollar is strong and for sentiment to change, we need Yellen to say that a rate hike is coming and we need to another unambiguously strong non-farm payrolls report. Even then, there’s zero chance of a rate hike in September or November. December though is open for discussion especially since it is a meeting where the Fed releases its latest economic projections and Janet Yellen delivers a press conference. Unfortunately there’s still 4 months before the December meeting and there’s zero chance the Fed will raise rates in September or November. So in order for the dollar to bottom we need overwhelmingly positive data so until then dollar will continue to fall, consolidate for the next week or experience shallow bounces. There’s been evidence of the Bank of Japan checking rates on the 99 handle but they seem to be more worried about the pace of decline than the absolute level of the currency.

Technically the downtrend in USD/JPY is still very strong. 100 may be an important psychological support level, the main area of support is the June low of 99 (there’s also some support at 99.50). If the pair holds this level then a move back to 102 is possible. There’s still a chance of a bottom near current levels. Taking a look at a longer term monthly chart, if 99 is broken, then the next stop will be the 100-month SMA. 100.20, the area where USD/JPY is hovering at the end of the week is also a key Fibonacci retracement level of the 2011 to 2015 rally.