EUR/USD: September Narrower Than Usual

At the start of September, we wrote a piece on what to expect from a trading range perspective for the month in EUR/USD. With the September Federal Reserve rate-setting meeting and the German elections now freshly out of the way, we seem to have got into a bit of stalemate the last few trading days in EUR/USD. Based on statistics, however, we should in fact see some additional range expansion before the month's end. For the month of September post the 2008 crash, EUR/USD has had an average range of 6.3 percent, but at the time of writing the EUR/USD range for the current month remains at 3.5 percent. With six trading days left before heading into October, we are looking forward to try to gauge what to expect for the last few days of this month.

Upside in EUR/USD still more attractive
As can be seen from the second chart below, the average upside potential in EUR/USD would leave scope for a target of 1.3753 on the upside, which is still our preferred scenario and it is also the path for a range expansion with the least amount of resistance to do so. On this path, we would look for EUR/USD to close above the 1.3550-1.3565 zone, which would technically yield an upside momentum bias and likely lead to a test of the 2013 highs at 1.3711, which almost coincides with the upside mean range for September.

Risks for downside correction however growing
On the downside, the risks are starting to look more pronounced, as the lack of decisive upside conviction along with the daily stochastics are potentially starting to cross to give signs of an impending downside correction. But with both 1.3491, the 50 percent retracement level in the 1.4940-1.2042 wave, and 1.3452 (August highs and prior breakout) support still intact, there is still some “wood to chop” before the downside potential can be confirmed in earnest. Also, with EUR/USD lows for the month of September now sitting at 1.3104, a range expansion before the month-end through the lower end of the range looks significantly less likely than on the upside.

With month-end straddle prices presently at approximately 105 USD pips, there could be money to be made on the option side using some of the above key technical levels for direction purposes before month end. We will be coming back to this trading setup in the coming days.