Sive Morten
Special Consultant to the FPA
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Fundamentals
Price performance was relatively quiet this week as market was focused on the job data release. While Initial claims really has surprised with two times upward jump, Friday's NFP has become the logical consequences of claims and has not triggered significant action. In general, guys, this week signs rising worries on extended recession in global economy. As Chinese PMI, not necessary to talk about EU ones, as US job data do not encourage. World was too busy yet with purely healthcare measures to stop infection, paying low attention to consequences because of no choice but take necessary step whatever cost will be. Now, when epidemic process stabilized and relatively stands under control (in China it is finished) - first information appears on impact of the virus. Now investors could make analysis, think and assess the damage. And data that we get tells that it is hard times ahead. Nothing is over yet, at least in economy terms. This is major conclusion of this week. The full picture is yet to be formed, but even job and PMI puzzle parts already give approximation and hint on what to expect.
China’s yuan held steady even after a key survey showed manufacturing returned to growth in March, but investors remain sceptical of the uptick given many businesses are still struggling to resume operations from coronavirus disruptions. China’s official manufacturing Purchasing Manager’s Index unexpectedly showed activity swung to expansion in March, but traders tempered their optimism because China’s economy is still expected to suffer a steep economic contraction in the first quarter and other major economies are also taking a big hit. Only on Monday the People’s Bank of China unexpectedly cut its reverse repo rate by the most in almost five years to relieve pressure on the economy.
Investors seem optimistic about China’s recovery, with fund inflows hitting a 5-year peak late last month. But the risk of a second wave of infections is underscored by China reintroducing some curbs on movement. Any new outbreak would crush confidence and prolong lockdowns elsewhere too.
And the scale of recovery is an open question as global demand for goods languishes. With data coming out with a lag, investors will focus on indicators such as coal consumption (rising, but depressed), cargo handling (about 90% of pre-virus levels in Shanghai last week), gambling (collapsed) and box office takings (negligible). Next week may bring more clarity.
Pressure on sterling early in the day also came from a survey published on Tuesday showing that confidence among British companies slumped in the second week of March as the coronavirus crisis gathered pace, but before the government shut much of the economy to slow its spread.
In addition, the ratings agency Fitch cut Britain’s sovereign debt rating last week, saying the country’s debt would surge as the government ramped up spending to offset the near shutdown of the economy in the face of the virus.
“Because of the U.K.’s current account deficit, sterling during this crisis is acting like a high beta currency,” which means a currency prone to higher volatility and risk, said Athanasios Vamvakidis, head of G10 forex strategy at Bank of America Merrill Lynch. For the now, though, the fall in sterling is “mostly a dollar move,” he said.
Vamvakidis said he closed his long position on sterling this week when the currency rose close to $1.25. The key driver for foreign exchange markets, he said, including sterling, will be whether government lockdowns in response to coronavirus deliver results.
The dollar advanced on Wednesday, with markets bracing for what is shaping up to be one of the worst economic contractions in decades as the world confronts the coronavirus pandemic. The greenback, the world’s leading global reserve currency, rose against the euro, sterling and most other major currencies as selling in global shares highlighted growing risks from the pandemic that has shown little sign of easing.
“The dollar does well in global recessions,” said Momtchil Pojarliev, head of currencies at BNP Asset Management in New York. “We think this virus is going to cause a global recession so the dollar will do well.”
Markets were spooked after U.S. President Donald Trump’s dire press briefing late Tuesday, where he warned Americans of a “painful” two weeks ahead in fighting the coronavirus even with strict social distancing measures. White House coronavirus coordinator Deborah Birx displayed charts demonstrating data and modeling that showed an enormous jump in deaths to a range of 100,000 to 240,000 people from the virus in the coming months.
The ADP National Employment Report on Wednesday showed private payrolls fell by 27,000 jobs last month, the first decline since September 2017, compared with forecasts of 150,000 job losses.
Another piece of data showed that U.S. manufacturing activity contracted less than expected in March, but disruptions caused by the coronavirus pandemic pushed new orders received by factories to an 11-year low, reinforcing economists’ views that the economy was in recession.
Artur Baluszynski, head of research at Henderson Rowe, said he expects the new orders’ index to start feeding through to the main index next month.
“With almost every segment of the global economy shutting down one after another, first due to supply and now due to demand shocks, these numbers will get worse and worse,” he added.
Some analysts believed that the dollar is likely to remain supported as investors brace for a sharp economic downturn in the coming quarters.
“The Fed’s efforts so far are the closest thing to taming the dollar’s strength,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. “But the desire to hold dollars remains elevated ahead of what’s expected to be a punishing second quarter for U.S. and global growth.”
The dollar firmed against major currencies for a third straight day on Friday, as investors took shelter in the U.S. currency amid worsening economic fallout from the coronavirus outbreak.
“As we see poor data coming in from Europe, UK, Italy, if you’re trying to be rushing anywhere, it would be U.S. Treasuries and the U.S. dollar as a safe haven,” said John Doyle, vice president of dealing and trading at Tempus Inc in Washington.
The dollar largely shrugged off the U.S. non-farm payrolls report that showed massive job losses of 701,000 last month, compared with expectations of 100,000 lost jobs.
March’s contraction abruptly ended a historic 113 straight months of employment growth. The Labor Department also revised February’s number upward to 275,000 job gains. The unemployment rate rose to 4.4% from 3.5% the previous month.
“The plunge in non-farm payrolls in March, which is already close to the worst monthly declines during the global financial crisis, suggests the coronavirus pandemic started to decimate the economy even sooner than we thought,” said Andrew Hunter, senior U.S. economist at Capital Economics.
The non-farm payrolls report followed Thursday’s data showing initial claims for U.S. unemployment benefits rose to 6.65 million in the latest week from an unrevised 3.3 million the previous week.
Indecision among euro zone governments about a rescue package for the region’s hobbled economies has weakened the euro in recent days. As lockdowns continue, the economic impact of the epidemic is becoming more marked, with purchasing managers’ indexes across the euro zone and Britain on Friday showing a slump in business activity.
A hectic few days loom for euro zone finance ministry officials, who will be locked in teleconferences debating how best to aid poorer states buckling under the coronavirus strain. It’s safe to say a solution that satisfies everyone won’t come by the April 9 deadline. The same old fissures remain within the bloc — Germany and the Netherlands fiercely oppose proposals for joint ‘coronabonds’, favoured by France, Italy and Spain.
Such an issue would assure poorer countries — and investors — that prosperous bloc members stand behind them, keeping borrowing costs in check. But likelier options this time around include credit lines from the euro zone’s bailout fund, more lending from the European Investment Bank and using a joint long-term budget directly or for guarantees for leveraged borrowing.
Germany will probably dodge joint bonds this time. But another whatever-it-takes moment is inevitable.
“The complication is that while all the things that the governments have done are very positive, they’re like extra welfare payments and they can’t do anything more than that,” said Adrian Lee, president and chief investment officer at active currency manager Adrian Lee & Partners.
“When we do come out of lockdowns, everybody will be desynchronized. China comes out first, then Italy comes out. But the world is so interconnected. It’s not great when you can work in the U.S., but you can’t visit London.”
CFTC Data
Recent COT report shows small changes to net position. Some short covering has happened, as a result net long position increased a bit. In fact as hedgers as speculators have closed approximately 10K shorts both. But this was before two moments - first, lack of consensus among core EU countries on unti-virus programme, second - US job data. But positive PMI change in China already was known. Thus, it is too early to make far going conclusions.
That's being said, now we have an equation with too many unknown parameters. First is, nobody know the deep of harm to global economy. First data is released, but it is too few light to discover the whole picture. Investors start to worry on long-term crisis and carefully start to buy USD again. D. Trump forecast on virus impact in US sounds scaring. Second - dis-balancing of global economy. China gradually turns to common life, while US and EU are still in fire of epidemic. It seems that we will get at least 3 month lag and what could happen in this three month is only God known. EU has own problems as they can't get to agreement on anti-virus supportive measures among the countries. Position of Italy and Spain that care major burden of epidemic radically differs from position of Germany, Netherlands and other countries.
Finally, and most important thing - is it possible the relapse of epidemic? Whatever reason will be, especially when borders will be opened again. That's also the Fathom talks about:
It is now abundantly clear that the global economy is undergoing an economic contraction on a scale not seen since at least the Great Depression. In the UK, close to a million people have registered for Universal Credit within the past two weeks. With many who are out of work ineligible for this benefit, this is broadly consistent with results from a YouGov Poll, that suggested close to three million UK workers may already have lost their jobs as a result of the coronavirus outbreak. The new orders component in yesterday’s ISM survey of US manufacturers dropped sharply in March to 42.2, the weakest reading since early 2009.
Equally, the NBS measure of activity in China’s manufacturing and non-manufacturing sectors reminds us that a V-shaped recovery is still possible. After plummeting to record lows in February, at a time when half of China’s population had their movements severely restricted, both the manufacturing and non-manufacturing measures of economic activity moved back above the neutral 50 level. Taken at face value, this suggests that activity began to recover in March, though it is likely to be some months before pre-crisis levels are attained.
If our central scenario of a V-shaped recovery is to be achieved, it is vital that widespread lockdowns are successful in bringing the pandemic under control within a few months. The daily mortality statistics collated by Johns Hopkins University make for grim reading. They do, nevertheless, suggest that the lockdowns are working. Two to three weeks after they are imposed, the rate at which deaths are increasing tends to fall from around 30% a day to around 10% day. In the case of China, additional fatalities have been in the low single figures for the past week or so.
A second necessary condition for a V-shaped recovery is that governments around the world put in place packages of financial support that are sufficient to keep those firms that have been told to cease production solvent, and their staff able to pay the bills. We do, however, detect a growing sense of frustration that these financial lifelines, while impressive on paper, can be hard to access in practice.
Economic forecasting is difficult even at the best of times. It is particularly difficult today. At Fathom, we think in terms of scenarios and seek, wherever possible, to downplay point forecasts. A severe contraction in global economic activity through the first half of this year is inevitable – we are facing what French economist Pierre-Olivier Gourinchas has referred to as a ‘sudden stop’, something the global economy has never experienced before. But how long will it last? In our Global Economic and Markets Outlook for 2020 Q1, we set out three scenarios. The first was a V-shaped recovery, in which the number of cases peaks within months and begins to decline, allowing activity by the end of this year to return to normal levels. The second was a U-shaped recovery, where the virus continues to spread, depressing activity until a vaccine is found, but the economic and financial market infrastructure remains in place to deliver a strong rebound when that occurs. The third was an L-shaped recovery. Since we finalised our forecast on 17 March, a number of major economies have placed more severe restrictions on movement, and imposed a temporary shutdown on more industries than we had thought likely. This more aggressive action has caused us not only to anticipate an even sharper contraction in economic activity in the first few months of this year, but to increase the weight we attach to a V-shaped recovery. At the same time, we have also increased the weight we attach to our more severe risk scenario, making the outlook somewhat bimodal. In the event that COVID-19 returns with equal or greater vigour once restrictions that are holding back economic activity are lifted, then a severe financial crisis will be very hard to avoid.
Technicals
Monthly
Technically EUR direction depends on breakout. On monthly chart we have doji, that is also the bullish grabber. Thus, recent week action has no matter for this picture as price action still stands inside the doji range and makes no impact on situation.
Interestingly, that doji levels coincide with Pivots support and resistance levels as well. Downside breakout opens road to the parity, while upside break should open road for equal doji distance to upside - somewhere to 1.23 area. Still, taking in consideration fundamental background it seems that EU is paralyzed in making any decision as countries are not united on the face of common tragedy. That's being said, in current circumstances downside continuation looks more probable.
Additionally guys, I suggest we should keep an eye on long-term Dollar Index chart. It stands a bit different to EUR as DXY is already near previous extreme point. This level at the same time is a all time K-resistance area. As upside breakout as downside reversal definitely becomes the decisive moment for long-term performance of all currency pairs, including EUR.
Weekly
Last week we talked about two possible scenarios - downside breakout and continuation to next long term target around par (which is our XOP), or appearing of reversal pattern. As we've said - "market reaction on daily chart should have to clarify this and by the result of this week".
Currently we see few moments that hurt idea of bullish reversal, although not cancelled it totally. As we said, we have two potential patterns - widening triangle or diamond shape, second - extended bullish engulfing pattern inside. So, currently it seems downside action is too strong for engulfing as EUR has broken all support levels on daily chart. Although lows of the pattern are still intact and supported by oversold level, downside action is too extended to treat it as just a pullback before upside continuation.
Second, for diamond - we should have seen continuation back to the top, while we've got sharp downside reversal instead. Trend again has turned bearish here. Combination of these two factors make not as attractive taking long position here.
Daily
Daily picture has not changed since Friday. We already said about our worries on too strong downside performance, despite that on weekly we have potentially bullish patterns. Taking in consideration how easy was breakout of major support levels on daily, we suggest to stay aside from taking any long positions by far, at least until appearing of real bullish reversal patterns. Mostly it should be some adequate reaction on Dollar Index resistance that should be reflected on EUR as well.
Currently it seems that overbought level holds market from further drop by far. Trend has turned bearish.
Intraday
Here downside action stands strictly forward, with minor reaction to major support areas, mostly ignoring them. Thus, once EUR abandons oversold condition on daily chart - we should be ready to downside continuation in an area of previous bottom and XOP target - 1.0650-1.0680
Price performance was relatively quiet this week as market was focused on the job data release. While Initial claims really has surprised with two times upward jump, Friday's NFP has become the logical consequences of claims and has not triggered significant action. In general, guys, this week signs rising worries on extended recession in global economy. As Chinese PMI, not necessary to talk about EU ones, as US job data do not encourage. World was too busy yet with purely healthcare measures to stop infection, paying low attention to consequences because of no choice but take necessary step whatever cost will be. Now, when epidemic process stabilized and relatively stands under control (in China it is finished) - first information appears on impact of the virus. Now investors could make analysis, think and assess the damage. And data that we get tells that it is hard times ahead. Nothing is over yet, at least in economy terms. This is major conclusion of this week. The full picture is yet to be formed, but even job and PMI puzzle parts already give approximation and hint on what to expect.
China’s yuan held steady even after a key survey showed manufacturing returned to growth in March, but investors remain sceptical of the uptick given many businesses are still struggling to resume operations from coronavirus disruptions. China’s official manufacturing Purchasing Manager’s Index unexpectedly showed activity swung to expansion in March, but traders tempered their optimism because China’s economy is still expected to suffer a steep economic contraction in the first quarter and other major economies are also taking a big hit. Only on Monday the People’s Bank of China unexpectedly cut its reverse repo rate by the most in almost five years to relieve pressure on the economy.
Investors seem optimistic about China’s recovery, with fund inflows hitting a 5-year peak late last month. But the risk of a second wave of infections is underscored by China reintroducing some curbs on movement. Any new outbreak would crush confidence and prolong lockdowns elsewhere too.
And the scale of recovery is an open question as global demand for goods languishes. With data coming out with a lag, investors will focus on indicators such as coal consumption (rising, but depressed), cargo handling (about 90% of pre-virus levels in Shanghai last week), gambling (collapsed) and box office takings (negligible). Next week may bring more clarity.
Pressure on sterling early in the day also came from a survey published on Tuesday showing that confidence among British companies slumped in the second week of March as the coronavirus crisis gathered pace, but before the government shut much of the economy to slow its spread.
In addition, the ratings agency Fitch cut Britain’s sovereign debt rating last week, saying the country’s debt would surge as the government ramped up spending to offset the near shutdown of the economy in the face of the virus.
“Because of the U.K.’s current account deficit, sterling during this crisis is acting like a high beta currency,” which means a currency prone to higher volatility and risk, said Athanasios Vamvakidis, head of G10 forex strategy at Bank of America Merrill Lynch. For the now, though, the fall in sterling is “mostly a dollar move,” he said.
Vamvakidis said he closed his long position on sterling this week when the currency rose close to $1.25. The key driver for foreign exchange markets, he said, including sterling, will be whether government lockdowns in response to coronavirus deliver results.
The dollar advanced on Wednesday, with markets bracing for what is shaping up to be one of the worst economic contractions in decades as the world confronts the coronavirus pandemic. The greenback, the world’s leading global reserve currency, rose against the euro, sterling and most other major currencies as selling in global shares highlighted growing risks from the pandemic that has shown little sign of easing.
“The dollar does well in global recessions,” said Momtchil Pojarliev, head of currencies at BNP Asset Management in New York. “We think this virus is going to cause a global recession so the dollar will do well.”
Markets were spooked after U.S. President Donald Trump’s dire press briefing late Tuesday, where he warned Americans of a “painful” two weeks ahead in fighting the coronavirus even with strict social distancing measures. White House coronavirus coordinator Deborah Birx displayed charts demonstrating data and modeling that showed an enormous jump in deaths to a range of 100,000 to 240,000 people from the virus in the coming months.
The ADP National Employment Report on Wednesday showed private payrolls fell by 27,000 jobs last month, the first decline since September 2017, compared with forecasts of 150,000 job losses.
Another piece of data showed that U.S. manufacturing activity contracted less than expected in March, but disruptions caused by the coronavirus pandemic pushed new orders received by factories to an 11-year low, reinforcing economists’ views that the economy was in recession.
Artur Baluszynski, head of research at Henderson Rowe, said he expects the new orders’ index to start feeding through to the main index next month.
“With almost every segment of the global economy shutting down one after another, first due to supply and now due to demand shocks, these numbers will get worse and worse,” he added.
Some analysts believed that the dollar is likely to remain supported as investors brace for a sharp economic downturn in the coming quarters.
“The Fed’s efforts so far are the closest thing to taming the dollar’s strength,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. “But the desire to hold dollars remains elevated ahead of what’s expected to be a punishing second quarter for U.S. and global growth.”
The dollar firmed against major currencies for a third straight day on Friday, as investors took shelter in the U.S. currency amid worsening economic fallout from the coronavirus outbreak.
“As we see poor data coming in from Europe, UK, Italy, if you’re trying to be rushing anywhere, it would be U.S. Treasuries and the U.S. dollar as a safe haven,” said John Doyle, vice president of dealing and trading at Tempus Inc in Washington.
The dollar largely shrugged off the U.S. non-farm payrolls report that showed massive job losses of 701,000 last month, compared with expectations of 100,000 lost jobs.
March’s contraction abruptly ended a historic 113 straight months of employment growth. The Labor Department also revised February’s number upward to 275,000 job gains. The unemployment rate rose to 4.4% from 3.5% the previous month.
“The plunge in non-farm payrolls in March, which is already close to the worst monthly declines during the global financial crisis, suggests the coronavirus pandemic started to decimate the economy even sooner than we thought,” said Andrew Hunter, senior U.S. economist at Capital Economics.
The non-farm payrolls report followed Thursday’s data showing initial claims for U.S. unemployment benefits rose to 6.65 million in the latest week from an unrevised 3.3 million the previous week.
Indecision among euro zone governments about a rescue package for the region’s hobbled economies has weakened the euro in recent days. As lockdowns continue, the economic impact of the epidemic is becoming more marked, with purchasing managers’ indexes across the euro zone and Britain on Friday showing a slump in business activity.
A hectic few days loom for euro zone finance ministry officials, who will be locked in teleconferences debating how best to aid poorer states buckling under the coronavirus strain. It’s safe to say a solution that satisfies everyone won’t come by the April 9 deadline. The same old fissures remain within the bloc — Germany and the Netherlands fiercely oppose proposals for joint ‘coronabonds’, favoured by France, Italy and Spain.
Such an issue would assure poorer countries — and investors — that prosperous bloc members stand behind them, keeping borrowing costs in check. But likelier options this time around include credit lines from the euro zone’s bailout fund, more lending from the European Investment Bank and using a joint long-term budget directly or for guarantees for leveraged borrowing.
Germany will probably dodge joint bonds this time. But another whatever-it-takes moment is inevitable.
“The complication is that while all the things that the governments have done are very positive, they’re like extra welfare payments and they can’t do anything more than that,” said Adrian Lee, president and chief investment officer at active currency manager Adrian Lee & Partners.
“When we do come out of lockdowns, everybody will be desynchronized. China comes out first, then Italy comes out. But the world is so interconnected. It’s not great when you can work in the U.S., but you can’t visit London.”
CFTC Data
Recent COT report shows small changes to net position. Some short covering has happened, as a result net long position increased a bit. In fact as hedgers as speculators have closed approximately 10K shorts both. But this was before two moments - first, lack of consensus among core EU countries on unti-virus programme, second - US job data. But positive PMI change in China already was known. Thus, it is too early to make far going conclusions.
That's being said, now we have an equation with too many unknown parameters. First is, nobody know the deep of harm to global economy. First data is released, but it is too few light to discover the whole picture. Investors start to worry on long-term crisis and carefully start to buy USD again. D. Trump forecast on virus impact in US sounds scaring. Second - dis-balancing of global economy. China gradually turns to common life, while US and EU are still in fire of epidemic. It seems that we will get at least 3 month lag and what could happen in this three month is only God known. EU has own problems as they can't get to agreement on anti-virus supportive measures among the countries. Position of Italy and Spain that care major burden of epidemic radically differs from position of Germany, Netherlands and other countries.
Finally, and most important thing - is it possible the relapse of epidemic? Whatever reason will be, especially when borders will be opened again. That's also the Fathom talks about:
It is now abundantly clear that the global economy is undergoing an economic contraction on a scale not seen since at least the Great Depression. In the UK, close to a million people have registered for Universal Credit within the past two weeks. With many who are out of work ineligible for this benefit, this is broadly consistent with results from a YouGov Poll, that suggested close to three million UK workers may already have lost their jobs as a result of the coronavirus outbreak. The new orders component in yesterday’s ISM survey of US manufacturers dropped sharply in March to 42.2, the weakest reading since early 2009.
Equally, the NBS measure of activity in China’s manufacturing and non-manufacturing sectors reminds us that a V-shaped recovery is still possible. After plummeting to record lows in February, at a time when half of China’s population had their movements severely restricted, both the manufacturing and non-manufacturing measures of economic activity moved back above the neutral 50 level. Taken at face value, this suggests that activity began to recover in March, though it is likely to be some months before pre-crisis levels are attained.
If our central scenario of a V-shaped recovery is to be achieved, it is vital that widespread lockdowns are successful in bringing the pandemic under control within a few months. The daily mortality statistics collated by Johns Hopkins University make for grim reading. They do, nevertheless, suggest that the lockdowns are working. Two to three weeks after they are imposed, the rate at which deaths are increasing tends to fall from around 30% a day to around 10% day. In the case of China, additional fatalities have been in the low single figures for the past week or so.
A second necessary condition for a V-shaped recovery is that governments around the world put in place packages of financial support that are sufficient to keep those firms that have been told to cease production solvent, and their staff able to pay the bills. We do, however, detect a growing sense of frustration that these financial lifelines, while impressive on paper, can be hard to access in practice.
Economic forecasting is difficult even at the best of times. It is particularly difficult today. At Fathom, we think in terms of scenarios and seek, wherever possible, to downplay point forecasts. A severe contraction in global economic activity through the first half of this year is inevitable – we are facing what French economist Pierre-Olivier Gourinchas has referred to as a ‘sudden stop’, something the global economy has never experienced before. But how long will it last? In our Global Economic and Markets Outlook for 2020 Q1, we set out three scenarios. The first was a V-shaped recovery, in which the number of cases peaks within months and begins to decline, allowing activity by the end of this year to return to normal levels. The second was a U-shaped recovery, where the virus continues to spread, depressing activity until a vaccine is found, but the economic and financial market infrastructure remains in place to deliver a strong rebound when that occurs. The third was an L-shaped recovery. Since we finalised our forecast on 17 March, a number of major economies have placed more severe restrictions on movement, and imposed a temporary shutdown on more industries than we had thought likely. This more aggressive action has caused us not only to anticipate an even sharper contraction in economic activity in the first few months of this year, but to increase the weight we attach to a V-shaped recovery. At the same time, we have also increased the weight we attach to our more severe risk scenario, making the outlook somewhat bimodal. In the event that COVID-19 returns with equal or greater vigour once restrictions that are holding back economic activity are lifted, then a severe financial crisis will be very hard to avoid.
Technicals
Monthly
Technically EUR direction depends on breakout. On monthly chart we have doji, that is also the bullish grabber. Thus, recent week action has no matter for this picture as price action still stands inside the doji range and makes no impact on situation.
Interestingly, that doji levels coincide with Pivots support and resistance levels as well. Downside breakout opens road to the parity, while upside break should open road for equal doji distance to upside - somewhere to 1.23 area. Still, taking in consideration fundamental background it seems that EU is paralyzed in making any decision as countries are not united on the face of common tragedy. That's being said, in current circumstances downside continuation looks more probable.
Additionally guys, I suggest we should keep an eye on long-term Dollar Index chart. It stands a bit different to EUR as DXY is already near previous extreme point. This level at the same time is a all time K-resistance area. As upside breakout as downside reversal definitely becomes the decisive moment for long-term performance of all currency pairs, including EUR.
Weekly
Last week we talked about two possible scenarios - downside breakout and continuation to next long term target around par (which is our XOP), or appearing of reversal pattern. As we've said - "market reaction on daily chart should have to clarify this and by the result of this week".
Currently we see few moments that hurt idea of bullish reversal, although not cancelled it totally. As we said, we have two potential patterns - widening triangle or diamond shape, second - extended bullish engulfing pattern inside. So, currently it seems downside action is too strong for engulfing as EUR has broken all support levels on daily chart. Although lows of the pattern are still intact and supported by oversold level, downside action is too extended to treat it as just a pullback before upside continuation.
Second, for diamond - we should have seen continuation back to the top, while we've got sharp downside reversal instead. Trend again has turned bearish here. Combination of these two factors make not as attractive taking long position here.
Daily
Daily picture has not changed since Friday. We already said about our worries on too strong downside performance, despite that on weekly we have potentially bullish patterns. Taking in consideration how easy was breakout of major support levels on daily, we suggest to stay aside from taking any long positions by far, at least until appearing of real bullish reversal patterns. Mostly it should be some adequate reaction on Dollar Index resistance that should be reflected on EUR as well.
Currently it seems that overbought level holds market from further drop by far. Trend has turned bearish.
Intraday
Here downside action stands strictly forward, with minor reaction to major support areas, mostly ignoring them. Thus, once EUR abandons oversold condition on daily chart - we should be ready to downside continuation in an area of previous bottom and XOP target - 1.0650-1.0680
