Taken in isolation, yesterday’s slight drift lower on the euro could be considered to be just another day. However, in light of the significant sell-off on equity markets, much of which was driven by increased expectation of Fed tightening, in fact the lack of downside pressure on the euro could be a significant event. Yesterday was an “inside day” which means a lack of conviction with the prevailing trend. The euro has been sold off almost indiscriminately in the past few weeks, but it is now looking rather stretched to the downside. The RSI is at 23 now and is the lowest since June 2012, furthermore the implied target from the April/May double top has been reached. Watching the intraday chart could give the first signs of a reversal now. The falling 89 hour moving average has been a good basis of resistance during the decline and comes in now at $1.3406. If the euro starts to trade above this is could be an early sign that the selling pressure is abating (for now) and a technical rally is due. The issue today is that there are so many huge fundamental events (PMIs, Non-farm Payrolls) that we could be in for a volatile day which could give false signals. As ever at the moment, any short positions should remain close to stops. A move below $1.3365 would continue the downside, but I believe we are edging closer to a rally now.
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