Asia investors opted for risk plays, with the Nikkei hitting 4 months high as the total Japanese public debt rises to the Y1 quadrillion handle, a number that would hardly fit in most calculators. While main media outlets question whether or not this global central bank stimulus efforts will revive demand, in this piece we take a look at the prospects of the EURUSD - better bid post BoJ - and what may come first, a launch a broader up-trend or instead sellers taking the upper hand in the short-term.
The rain of money poured into risky asset markets no doubt suggests we are going through a period of very emotional markets. As John J Hardy, Head of FX Strategy at Saxo Bank, questions: “Is this just an outburst of a few days in response to the Fed’s move or will it drag on for a few more weeks?”
From JP Morgan FX strategist Thomas Anthonj: “The jury is still out on whether excessive liquidity supply provided from the Fed and the ECB will finally manage to brighten the social mood (btw, this never worked before!). This is absolutely essential to extend the current risk and EUR rally as otherwise these markets would have gotten well ahead of themselves.”
EUR/USD, will s/t bearish tone continue?
If one were to call for a temporary top in EUR/USD, today looks the most bearish it has been out of the last ten days, suject to the condition of not forgetting the broader story, which is one with buyers still in full control, and that favors the market buying the single currency on dips. But let's focus in the next European session, shall we?
There is some signs of a short tern change in fortunes for the brave sellers, with the case turning credible after an erroneous double roof-top confirmation, the breakout of 1.25-1.3166 ascending trendline, all preceded by the waning momentum at the critical 1.31-1.32 resistance. These early tech-based price dynamics may be hinting that the risk parade has run its course after the generous pricing of Fed/ECB commitments to open-ended asset purchases.
The scarcity of clear short term bullish interbank actors calling for further rises in the coming session, may be explained by both, their preference to go short as reported above, and the reckoning that short-term charts look quite pricey, making the notion of high risk reward scenarios if going long at current price not looking great.
1.30 can act as a magnet
Readers should take notice real money and macro funds continue to be main buyers while interbank players are selling into strength, report Sean Lee, Founder at FXWW.
Mr. Hardy from Saxobank notes: " Markets will have to decide whether it can get comfortable above 1.30 now that is has finally shown a little weakness at the knees. The weekly pivot comes in just above that important psychological level at 1.3015. Below that we have the 200-day moving average.”
If the EURUSD downward correction gets deeper today, with the bare minimum achievement by bears being a penetration of 1.30 round number, then, Saxobank's case that all we may have witnessed is a major spike may have some substance. Below this level, prospects for a dip towards 1.2930, 61.8% retracement of this year fall, look promising, according to Valeria Bednarik, Chief Analyst at FXstreet.com.
According to Fan Yang, Technical Strategist at FXTimes, the targeting of the 1.30 handle, "is the scenario the 9/18 US session will be faced with", adding that, "if there is a pullback, back above 1.3120, this bearish outlook would not look good. A hold below 1.31 would be a good sign that the market is focused on further bearish correction."
Thomas Anthonj adds: “This risk is also reflected in the EUR/USD chart, which still inherits a great risk of missing a 5th wave decline for a test of former lows at 1.1876 and at 1.1641 as long as strong resistance between 1.3057 and 1.3298 (int. 38.2 %/weekly trend) is not broken decisively. Above 1.3487 would see a game change in favor of a broader recovery to 1.4248/59 (pivot/76.4 %). Breaks below 1.2786/45 (int. 38.2 % on 2 scales) would on the other hand indicate downtrend resumption.”
No indicators look to make a difference in price today
Fundametally, there are concerns over the Spanish bond yields - despite Spanish and Italian bond yields declined yesterday - as the government keeps postponing request for a bailout. If the Spanish PM hard-line persists, it should be EUR-negative. However, more pressure on PM Rajoy seems here to stay after the Bank of Spain reported, 9.86% of all the debt in Spain’s banks may never be paid, the highest % since records began in 1962, the UK’s Independent note, arguing the country will need up to Eur 60 billion immediately.