Monday's bounce was a hard fought recovery for the euro. Bearish convinctions in the preceding weeks were defined by a decisive, descending EURUSD wedge that was developed through risk aversion and fading expectations for European rates. Looking at the hesitation in today's advance, we are left to wonder whether fundamentals have truly shifted in the euro's favor and whether yesterday's technical breaks have truly disrupted downtrends. Our analysts weigh in and highlight their euro pick for the week.
Currency Strategist - Terri Belkas
My picks: Long EUR/USD (pick from Monday)
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 Day - 1 Week
Sticking with my pick from yesterday, EUR/USD broke out from its falling wedge formation, creating a significant amount of bullish potential from current levels. In the near-term, possible targets include the January 18 highs near 1.3385, though a rally toward the psychologically important 1.3500 mark may not be out of the question, especially since the 38.2% fib of 1.4720-1.2764 looms at 1.3511. Stops should be placed accord to preferred risk/reward ratios, though a stop below the January 25 lows of 1.2861 should be sufficient.
Previous EUR trades: My long EUR/CAD pick from January 20 didn't work out so well, as the position ended up getting stopped out on Friday. Meanwhile, my pick from January 22 to stay long EUR/GBP hasn't done much, as the pair is near the same level as when I posted the pick. Since the pair isn't making the headway I previously expected, it may be worth it to exit the trade soon.
Currency Analyst - David Rodriguez
My picks: Flat the EUR/JPY for now
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
For the past couple of weeks I've remained short the EUR/JPY and it has gone far better than I could have hoped. Last week I called for further profit-taking, leaving on a quarter of the initial position size. Yet the past week of substantial rallies has deterred me from staying short at the moment. As such, I'd like to take full profits on the position and remain flat for the time being.
Currency Analyst - Ilya Spivak
My picks: Short EURUSD
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
I originally sold EURUSD at 1.5510 having identified a Long Black Candle that closed beyond trend line support. Two weeks ago, I added to the position at 1.3364 on a break of support/resistance level above 1.34. The Euro rallied impressively yesterday to close the trading session above resistance at a falling trend line connecting major swing highs starting from 12/18/08. This opens the door for an upswing to re-test 1.34. Move the stop-loss on the second portion of the position from 1.3508 to the break-even level at 1.3364. Should prices rise substantially higher, the stop-loss will allow the position to scale down exposure and allow for an opportunity to add to the original entry at a better price.
Currency Analyst - David Song
My picks: Remain Short EUR/CHF
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 - 10 Days
After slipping to a low of 1.4299 on 10/27, the EURCHF snapped back to hit a high of 1.5885 on 12/15, but the sharp retracement from the December high favors a bearish outlook for the pair. I have been short the pair since the sell off in December, but comments by SNB Vice-President Philipp Hildebrand triggered a 200+pip rally in the euro-franc following my bearish forecast last week. Despite the bounce in the pair, as short-term resistance continues to hold at 1.5090-1.5100 (50.0% Fib), I expect the pair to continue its downward trend over the near-term as market participants expect the European Central Bank to lower the benchmark interest rate further. As a result, I expect the pair to work its way towards the 20-Day SMA at 1.4920 over the remainder week, and a break below this level could push the EURCHF to test 1.4640-50 (78.6% Fib) for support over the near-term.
Currency Analyst - Joel S. Kruger
My picks: Sell EUR/GBP @0.9335, for 0.8835; stop at 0.9535
Expertise: Technical Analysis
Average Time Frame of Trades: 1-3 Days
A bearish reversal day is in the works with the market finally ending a string of 6 consecutive daily higher lows and higher highs. Despite the rally over the past few days the market had already been showing some signs of exhaustion after only making marginal higher highs on Thursday and Friday before finally reaching 0.9520 on Monday. However, inability to establish above the 61.8% fib retracement off of the 0.9805-0.8835 move has now opened the latest reversal. Daily stochastics confirm with the indicator in overbought territory and looking to roll over. Look for a break back below today's low to accelerate and expose a more significant downside extension back towards the recent range lows at 0.8835 (9Jan low). Only back above 0.9520 negates and gives reason for pause.
Fundamental Catalyst - The UK currency has been beaten down over the past several months on the back of deteriorating fundamentals within the local economy and a broader global macro recession. This has forced the Bank of England to take on an excessively accommodative monetary policy to offset the cooling. However, with the single currency now at 23-year lows against the USD and at historic lows against the Euro, many are now starting to look for relative value. Data has been consistently weaker than expected out of the region but any sign of as expected or better than expected numbers will surely go a long way in helping to support the case that the UK economy has bottomed. While the local data out of the Eurozone in the form of the IFO was better than expected, there is a growing sentiment that the European Central Bank has not done enough on the monetary policy and stimulus side to deal with its slowing economy. As such, an escalation of weakness in the Eurozone will likely force some liquidation of long EUR/GBP positions.