While EUR/USD short term drivers are matched between short rates and shorter term averages, current 1.1400’s overbought is broad based from all averages 5 to 253 days. Viewed from extremes, EUR/USD is done from 1.1454 to 1.1492 medium and short term and to 1.1523 to 1.1566 in longer term averages 100 to 253 days. Bottom extremes are located from 1.1020 to 1.0987 and 1.0974. Downside extremes informs confirmation to bottom based overbought averages at 1.1058 and 1.0947. Far more downside exits to current EUR/USD prices yet overbought warns not to chase longs at current levels.
The current EUR rally is driven both by Draghi’s normalization dreams and Yellen’s inverted yield curve which are both USD negative. If Dragh’s reality proves correct and the yield curve remains inverted then EUR rallies higher into far more overbought 1.1500’s. An inverted yield curve however doesn’t correct itself overnight especially when at 40 or so basis points corrects the inversion.
What prevents faster inverted corrections is the range of interest rates from the short end. In the last 4 days for example, the range moved from a high at 55 basis points to today’s 42. A further shorter range restriction is required in order for the 30 year yield to travel far higher than the current 10 to 30 spread at 55 basis points. This Russian standoff wont rightsize anytime soon particularly when the same shorter range existed long, long before the Yellen raise. For USD money markets, its almost written in stone. Yellen’s raise guaranteed a short range inversion against a 30 year yield drop. The 10 to 3 month at 1.26 and 1.16 Fed Funds matches against 10 to 30’s at 55 and 10 Vs 2’s at current 91.
How broad is the current EUR move is found in cross pairs as the main pairs to EUR/USD all trade above vital supports yet the vast majority are approaching or currently sit at overbought.
EUR/JPY supports are located at 127.94 and 127.16 yet overbought. EUR/CHF trades overbought an sits on supports at 1.0838 and 1.0811.
EUR/CAD and EUR/AUD are only questions to EUR/USD as EUR/CAD trades above supports at 1.4731 and 1.4719 yet is oversold. A good move exists in EUR/CAD. Likewise, EUR/AUD breaks support at 1.4871 and travels to 1.4650 and 1.4542 or trades higher to 1.5392.
EUR/NZD trades overbought and above supports at 1.5564 an 1.5447. Next above is 1.5893.
EUR/GBP is another misnomer in the EUR universe as it doesn’t have a clue. Its sits range bound above supports at 0.8697 and 0.8618.
Despite EUR/USD far overbought, the downside must find assistance from cross pair breaks. EUR/CAD and EUR/NZD could easily lead other cross pairs lower.
EUR/USD Tough resistance today at 1.1432 and 1.1445. Downside break points are located at 1.1402, 1.1381 and a big break at 1.1360. The longer term end point is found at 1.1295.
The Fed and ECB decide EUR/USD fate over next days. A time once existed when central banks lacked such power and control over market prices.
Brian Twomey
BRIAN TWOMEY ON TRADING 