9:50 AM (EST) Update
Yesterday was a bit harsh for US dollar bulls who weren’t expecting much economic data to move the currency market but a surprise downfall in tech shares in the US had an effect on Ms. USA on the forex dance floor.
On Tuesday major tech companies such as United Technologies, Apple, Microsoft, and Yahoo released revenues for their most recent quarters. For most, the headline figures seemed better than expected. Yet, despite the positive numbers, the US base market participants interpreted the outcome as poor and their correspondent shares fell massively in the afternoon, dragging the US dollar with it.
What does this mean for our bearish EUR/USD position?
Economic Points
1- Euro side:
Greece and its euro zone buddies formally launched talks on July 17 designed to lead to a third bailout program for Athens that could total 86 billion euros ($93.4 billion) over three years. Greece also secured bridge financing of 7.16 billion euros on the same day for a three-month period to tide it over until the bailout package is agreed.
Greece’s funding talks with the ECB and the IMF is scheduled to be continued well until December when we may potentially see the first quarterly review of Greek progress in third bailout.
Today the Greek parliament is set to vote on second set of measures demanded by euro zone partners (after first set on July 17). The demands are for a major overhaul of the civil justice system to judicial process and reduce costs and the transposition in national law of EU rules on bank resolution, including “bail-in” mechanisms to ensure shareholders and creditors share the costs of a failed bank, rather than taxpayers.
On August 20th, Greece is due to redeem five-year bond held by European Central Bank, with principal and interest of 3.4 billion euros. In September we may see the signing and ratification of third bailout program under European Stability Mechanism
Through all these, any surprises could push Mr. Euro lower against his major counterparts.
2- China’s Side
As I’ve mentioned before, China, being the second largest economy could also impact the moves of Mr. Euro. A couple of weeks ago, Chinese investors fell into another “panic selling” syndrome, successfully crashing China’s stock market. IMF data shows that after Ms. USA, Mr. euro is the most widely used reserve currency for central banks (good for him) but according to Bloomberg, China might start pulling its reserves out of the Euro and basically dumping Mr. Euro which could translate into less demand for poor Mr. Euro.
If you had paid attention during our supply and demand lesson, you’d know that less demand means further drops for Mr. Euro against his other forex counterparts.
3- US Side:
Besides yesterday’s downfall, Ms. USA has been performing strongly on the forex dance floor and further keeping the bullish wind behind he is the Fed who’s getting ready to hike rates this year. However, major US based companies who export their stuff to foreign countries (such as Apple, Microsoft and Invest Diva) are in a bit of a dilemma because their goods are more expensive for consumers abroad. That means that they won’t want to buy our stuff. The good news for Invest Diva however is that at least we can trade the US dollar and make money that way.
So anyways, back to the US economy, the initial jobless claims are scheduled to be out on Thursday and analysts are expecting fewer files being claimed by unemployed than last week. This is a key indicator for the US economic health so we’d want to keep an eye on it. A better than expected outcome will push the EUR/USD pair lower.
Technical Points
4- Short Term Outlook
After breaking below a triangle chart pattern, Mr. Euro continues below Ichimoku cloud as he dances against Ms. USA and remains below our new pivot level of 1.10 as well as a key resistance level of 23% Fibonacciat 1.1265. However we did see a spinning top followed by a strong bullish sentiment in the past couple of days but with today’s newly born bearish candlestick we could expect that the candlestick pattern was a false bullish alarm.
5- Long Term Outlook
Looking at a very very big picture of the EUR/USD pair on the monthly chart, going back to 13 years ago (when I was a teenager and didn’t give a flip about the currency market) we notice that the pair still hasn’t finished its long term market cycle. Not that it should happen, moving below a downward Ichimoku cloud with support levels as low as 0.85, one could read the pair’s intentions taking a walk down the memory lane around parity or something. The pair is obviously putting too much thought into this move though, since it really hasn’t move beyond its range since March.
So sit tight and wait for a make-or-break bearish signal below 1.05.
Alternative Scenario: Above 1.1265 look for rallies towards 1.15 and 1.17.
Where I’m setting my stops and limits:
| Support Levels | Turning Point | Resistance Levels |
|---|---|---|
| 1.08 | 1.11 | 1.15 |
| 1.0460 | 1.12 | 1.17 |
*Important Note: The support and resistance levels are not fixed and may not be suitable for all traders. Setting your stop loss and limit orders largely depends on your account size, margin and leverage. Book a private lesson to learn how to personalize your trading strategy.
