A trend lower. This has been the case since the GFC in 2008-2009. Until then, the thematic story in FX was the twin-deficits in the US. That pivot marks a before and after in the USD trade and the strengthening trend has been in spite of QE and an incredible expansion of the FED’s balance sheet. Relative Value wise, the USD is desirable.
MONTHLY CHART – EXPANDED
Our thesis has been that since the break of the NECKLINE there has been no meaningful corrective wave, making this sell-off a bit unusual. We are close to a pivotal level, as the support line is very near. Other time-frames will show the sell-off consolidating at these levels.
The major trend, established on the MONTHLY CHARTS is LOWER. Now we have to find minor trends, the ones that will allow us to make 200 – 400 points of corrective moves. The WEEKLY is showing support for now, and consolidation. the level marked by the dash line is the absolute line in the sand and a break could extend this sell off.
The 38.2% FIBO level offered support as well, as marked by the RED BOX. It ultimately broke down with out having any sort of meaningful corrective move. It rushed lower and now the 61.8% FIBO is serving as a level of consolidation. The level that we identify as the LINE IN THE SAND is 1.1177, so for us, it is a corrective move is to be expected, we can use that level, since it is close to current market, as a bottom to trade against, that offers convexity. What it does not do, is guarantee that it will hold.
The SELL OFF on FRIDAY negated the entire post FED move. That is significant as we can conclude that there are new factors that are contributing to the negativity surrounding the EUR. To go deeper, we will next look at EURXXX and see if we can isolate the selling pressure to the EUR, or if its a broader USD theme (we suspect it might be, and we suspect the market is starting to price heightened RISK in the system).
For now, we are more NEUTRAL EURUSD at these levels and consider that the RISK of breakdown has increased. We have reduced our risk and are ready to react in the event the support level breaks (1.1170-1.1180 is the area we are watching closely). Now we will focus on EUR crosses on subsequent posts.