Talking Points
- EURJPY, EUR/USD look to extend recent downside pivots.
- EURCAD may be a long candidate above 1.4660.
- August forex seasonality in QE era supports a stronger US Dollar.
Both EUR/JPY and EUR/USD have started to slip towards major support levels. In a sense, both pairs' dives are Euro-centric: more weak economic data out of the Euro-Zone compounded by fears of protracted conflict in Eastern Europe. The impact is not limited to FX: the German DAX has fallen -9.90% (10050.98 to 9055.57) since its all-time high on June 20.
EUR/USD remains on track to test the November 2013 lows (after the "surprise" ECB rate cut) near $1.3295, having just lost and set new weekly, monthly, and yearly lows under $1.3358. Beyond Euro-centric issues, EURUSD is being weighed down by several strong US economic data prints in a row.
Considering that EUR/JPY captures the 'risk averse' perspective in FX thanks to the Yen component, we'd be truly concerned for the EUR-complex if EUR/JPY were able to clear its February 2014 swing low near ¥136.22. The downtrend from the May 13, June 9, and July 3 highs remains in place; a move through ¥136.22 should see price down to ¥135.50 quickly (¥134.10 next support).
Positioning suggests that we need to be on guard for a short covering rally in the Euro, however. Non-commercials/speculators have increased net-short positions (108K contracts) to their highest levels since the week ended August 21, 2012 (124K contracts).
If there is a short covering rally, EUR/CAD may be primed to run higher. EUR/CAD may be setting a double bottom between C$1.4440 and 1.4660, calling for a move to C$1.4880. Note that daily MACD is close to moving above the zero line for the first time since April 28.
See the video above for the technical considerations of EUR/JPY, EUR/USD and EUR/CAD.
--- Written by Christopher Vecchio, Currency Strategist