DY: Euro Accelerates Declines to Fresh Multi-Year Lows
Market fear and panic has ratcheted up to a new level over the past few trading sessions, with risk aversion now eerily reminiscent of post Lehman levels. This time however, it is the Eurozone economy that is devastating investor confidence.
MORNING SLICES (Early Edition)
FUNDYS
Market fear and panic has ratcheted up to a new level over the past few trading sessions, with risk aversion now eerily reminiscent of post Lehman levels. This time however, it is the Eurozone economy that is devastating investor confidence, with the latest UK Telegraph survey of major economists calling for the death of the Euro within five years. Global equities have fallen off a cliff in early trade on Monday, as a much weaker than expected US NFP report and news of rapid economic deterioration within the Hungarian economy, are seen as the primary market drivers. Other factors playing into the fear and uncertainty include a large drop in oil prices, a German court considering a ban on EU/IMF aid packages, and a G20 meeting that has failed to provide any form of relief.
However, markets do have a tendency to overreact and overshoot too quickly in these types of trading environments and we would not at all be surprised to at least see some form of a reversal, with some buying back into risk, on account of dramatically overdone technical readings. The Euro has already broken below 1.1900 in early Monday trade, while Eur/Chf has grinded to another record low, and Eur/Jpy has dropped sharply to its fresh 2010 low. While we do not recommend buying back into risk just yet, there could be a compelling opportunity to do so for those who are patient. It always seems as though the moment at which investors are all convinced that the markets have no hope, is the moment when all of a sudden we see some major reversals. We are simply not sure if that moment has arrived just yet.
Looking ahead, the calendar for Monday is light, with Eurozone sentix (-7.0% expected) due at 8:30GMT, followed by German factory orders (-0.4% expected) at 10:00GMT. In North American trade, US consumer credit (%0.0B expected) is the only material release, due at 19:00GMT. On the official circuit, Fed Yellen is slated to speak later in the day at 21:00GMT. US equity futures are pointing to extended declines ahead of the European open, while oil is also tracking lower. Gold remains well supported and trades flat on the day.
TECHS
EUR/USD Short-term, medium-term, and longer-term technical studies continue to be ignored, with the market pressing lower to fresh multi-year lows into the 1.1800’s thus far. The break below 1.2100 in the previous week has set up a bearish continuation that now exposes next key support by the 2005 platform base at 1.1640. Look for any rallies to now be very well capped ahead of 1.2300, in favor of the next drop towards 1.1640.
USD/JPY The whipsaw price action from violent trade in early May has delayed our outlook but certainly does not change our overly constructive bias. The medium-term higher low from early March just over 88.00 remains intact, with the market stalling out ahead of the level, and we now look for a push higher from here back towards and through next key topside barriers by 95.00. Only a break back below 88.00 would negate and give reason for pause.
GBP/USD The overall structure remains intensely bearish and the market is in the process of seeking out a fresh lower top below 1.5500, ahead of the next major downside extension to retest the critical multi-year lows from 2009 by 1.3500. Rallies have recently stalled out just ahead of 1.4800, and the market looks poised for a direct retest of the 2010 lows by 1.4240, below which exposes 1.4000 and then 1.3500 further down.
USD/CHF The overall outlook remains highly constructive and while daily studies do not rule out the possibility for some form a pullback to allow for technicals to unwind, any setbacks should be very well supported ahead of 1.1200, in favor of an eventual push towards 1.2000. In the interim, short-term support comes in by 1.1430 and a break and close below will be required to trigger the onset of a short-term corrective pullback.
