EUR/JPY Heads Towards Range Top; EUR/USD Consolidates; EUR/GBP Breaks Support


Euro Outlook:

  • The three major EUR-crosses each have a unique story to tell as each pair has diverged in a meaningful manner over the past two weeks.
  • It remains the case that record COVID-19 infections, restrictions on travel, and a central bank in no hurry to raise rates make the Euro unappealing.
  • Per the IG Client Sentiment Index, the majority of EUR-crosses have a mixed bias.

Doing Their Own Thing

There has been considerable divergence among the three major EUR-crosses over the past week weeks. The fact that EUR/GBP, EUR/JPY, and EUR/USD rates haven’t traded in tandem suggests that the Euro is not in the driver’s seat; factors influencing the secondary currencies are proving more impactful.

For EUR/GBP rates, which just hit their lowest level since February 2020, the focus remains on the growing chasm between Bank of England and European Central Bank rate hike expectations; the former is expected to raise rates several times this year while the latter has been insisting that policy tightening will not commence.

For EUR/JPY rates, the end of year surge in risk appetite coupled with the rise in bond yields at the start of 2022 has depleted demand for the Japanese Yen, allowing the pair to return to its pre-COVID-19 omicron variant concern levels seen in mid-November.

For EUR/USD rates, rebalancing positioning in the futures market (where traders were the most net-long the US Dollar since October 2019) coupled with December and January seasonality factors have made it difficult for the US Dollar to breakout higher, even as Federal Reserve rate hike expectations have risen in recent days.

Accordingly, as noted in late-December, “the Euro unappealing in the short-term, setting up ‘sell the rally’ opportunities across EUR/JPY, EUR/GBP, and EUR/USD rates.” Traders may want to take a different strategy approach to each of the three major EUR-crosses, however, given the performance in the short-term.

EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (January 2021 to January 2022) (CHART 1)

EUR/USD rates have spent the better part of the last two months trading in a descending triangle pattern, which in context of the preceding move – a downtrend – eyes a continuation effort lower. Selling rallies has been fortuitous, insofar as the pair has not been able to make a decisive break above the descending trendline from the 2008 and 2014 highs.

Momentum has flattened out in recent weeks. EUR/USD rates are intertwined among their daily 5-, 8-, 13-, and 21-EMA envelope, which is in neither bearish nor sequential order. Daily MACD’s rise towards its signal line has been stunted, while daily Slow Stochastics are still dropping towards their median line. Selling rallies against the yearly high at 1.1383 remains favored, ultimately targeting the 61.8% Fibonacci retracement of the 2017 low/2018 high range at 1.1187 in the near-term.

IG Client Sentiment Index: EUR/USD Rate Forecast (January 5, 2022) (Chart 2)

Euro Technical Analysis: EUR/JPY Heads Towards Range Top; EUR/USD Consolidates; EUR/GBP Breaks Support

EUR/USD: Retail trader data shows 58.51% of traders are net-long with the ratio of traders long to short at 1.41 to 1. The number of traders net-long is 11.35% lower than yesterday and 3.04% higher from last week, while the number of traders net-short is 11.77% higher than yesterday and 0.55% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (January 2021 to January 2022) (CHART 3)

Euro Technical Analysis: EUR/JPY Heads Towards Range Top; EUR/USD Consolidates; EUR/GBP Breaks Support

EUR/JPY rates may have established a short-term double bottom at an area of confluence: channel support in place going back to April; and the multi-decade descending trendline from the July 2008 and December 2014 highs. The break above 129.65 sets up a double bottom target at 131.92 in the near-term; a move slightly higher towards the 23.6% Fibonacci retracement of the 2018 high/2020 low range at 132.05 is also possible. Should EUR/JPY rates trade into the 132.00 area, selling opportunities would be explored.

IG Client Sentiment Index: EUR/JPY Rate Forecast (January 5, 2022) (Chart 4)

Euro Technical Analysis: EUR/JPY Heads Towards Range Top; EUR/USD Consolidates; EUR/GBP Breaks Support

EUR/JPY: Retail trader data shows 39.00% of traders are net-long with the ratio of traders short to long at 1.56 to 1. The number of traders net-long is 14.62% higher than yesterday and 1.67% higher from last week, while the number of traders net-short is 10.14% higher than yesterday and 12.43% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/JPY prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/JPY trading bias.

EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (January 2021 to January 2022) (CHART 5)

Euro Technical Analysis: EUR/JPY Heads Towards Range Top; EUR/USD Consolidates; EUR/GBP Breaks Support

Whereas “EUR/GBP rates [had] the most muddled outlook among the three major EUR-crosses” in late-December, the pair has experienced the clearest directional bias over the past two weeks. The pair is now below its daily 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Daily MACD has set a relative cycle low, confirmed the drop by EUR/GBP rates to their lowest level since February 2020. Daily Slow Stochastics are nestled in oversold territory, enhancing the view that bearish momentum is reliable Further losses towards 0.8282 seem likely in the near-term.

IG Client Sentiment Index: EUR/GBP Rate Forecast (January 5, 2022) (Chart 6)

Euro Technical Analysis: EUR/JPY Heads Towards Range Top; EUR/USD Consolidates; EUR/GBP Breaks Support

EUR/GBP: Retail trader data shows 79.20% of traders are net-long with the ratio of traders long to short at 3.81 to 1. The number of traders net-long is 5.60% higher than yesterday and 31.78% higher from last week, while the number of traders net-short is 5.05% higher than yesterday and 3.70% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/GBP-bearish contrarian trading bias

— Written by Christopher Vecchio, CFA, Senior Strategist





Source link

Leave a Reply

Your email address will not be published.

Copyright © 2022 Billionaire Club Co LLC. All rights reserved

Chat
Loading the chat ...