Euro Strength Expected To Give According To Analyst Picks
Across the market, the euro has been strong on both daily and monthly time frames. However, the currency is scaling dangerous heights considering the volatility in the financial markets and the potential for a Euro-Zone recession. With the DailyFX Analysts turning their focus on the euro and pound this Tuesday, read ahead to see what they expect to unfolding going forward:
Chief Strategist - Antonio Sousa
My picks: Remain Short EUR/USD
Expertise: Fundamentals and Sentiment
Average Time Frame of Trades: 1 day - 3 months
I have been short euros since this morning and I expect the EUR/USD to fall further. Like we said in the special reporr we did yesterday, the U.S. dollar has been selling off on speculation that a government sponsored plan to buy illiquid mortgage assets from financial institutions will aggravate the budget deficit and make the U.S. tax payer more vulnerable to a slowdown in the U.S. economy. However, it seems we are seeing an overshoot of market sentiment against the U.S. dollar since it’s too early for market players to make conclusions regarding the true cost of this rescue plan. In fact, the U.S. government is going to hold both assets and liabilities and it’s even possible for them to make a substantial profit. It is difficult to make forecasts, particularly when the currency market is very volatile. Nonetheless, I expect the U.S. dollar to rebound sharply against the euro.
Senior Currency Strategist - Jamie Saettele
My picks: Exit EURUSD Long from last week
Expertise: Technical
Average Time Frame of Trades: 1 month
Risk is shifting to the downside. The Fibonacci zone from 1.6040-1.3877 begins at 1.4919 and the 8/22 high is at 1.4809. Now is not the time to get bullish.
Currency Strategist - John Kicklighter
My picks: Pending EURGBP
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
Most of the euro and pound pairs have fallen to congestion; but such activity is usually the predecessor of breakouts. Considering I already have exposure to yesterday's euro position (short EURCHF), I am waiting for a more reliable sign on direction in EURGBP before I consider direction from its recent range. Fundamentally, the long-term bias is in favor of the pound as sentiment has already been discounted sharply owing to the financial crunch and the swell of recession fears. This may seem counterintuitive, but the euro has just as dour an outlook (the Euro Zone and Germany are already one foot into a recession), yet the level of the euro suggests the market is still expecting the economy to ride it out. This is far too optimistic.
The short-term is what matters however, as the realizations of economic activity can take weeks or months to fully develop. Therefore, I'll rely on technicals. Recent congestion offers notable resistance and support at 0.7985 and 0.7850 respectively. This range can be played in the meantime, but rising daily lows is naturally curbing profit potential. A more cautious (and more profitable) approach would be to wait until a higher time frame candle closes above 0.80 or below 0.78 (a rising trendline and major 50% fib level). This will certainly be a pair to watch for a massive breakout, because this congestion has lasted for 5 months; and before recent price action, this pair was pitched in a steep trend from 0.66. A significant pull back is inevitable.
Currency Strategist - Terri Belkas
My picks: Short EUR/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days
The major rally in EUR/USD on Monday helped to propel EUR/JPY higher as well. However, with resistance looming above for the JPY cross at the 61.8% fib of 163.13 - 147.01 at 156.95, I think a decline is in order. 1) Given the extent of EUR gains and USD losses, it's natural to see a bit of a pullback. 2) Investor sentiment remains jittery and volatility remains high, creating a good environment for the JPY crosses to plunge. Add to that the scheduled testimony by Treasury Secretary Paulson and Fed Chairman Ben Bernanke at 10:00 EDT, and I think we have the "perfect storm" for EUR/JPY bears. Stops should be placed above noted resistance at 156.95/157.00 while 153.00/50 should serve as a decent target.
Currency Analyst - David Rodriguez
My picks: EUR/GBP short
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
Given the nature of recent EURUSD and GBPUSD rallies, I am hesitant to go long either pair--though as I said last week, I remain short-term bearish the US dollar. Instead I'll voice my GBPUSD trade from exactly one week ago in the EURGBP, as I think it has solid potential to decline through near-term trading. Resistance at 0.8009 should contain rallies, while downside targets are eyed at 0.7848.
Currency Analyst - Ilya Spivak
My picks: Short EURUSD Pending
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months
Yesterday's price action saw the Euro rally sharply higher against the Dollar, coming within a hair of the 1.49 level. With the long term bias still firmly in favor of a bearish scenario as the dollar as the yield spread is set to move 175 basis points in favor of the greenback in 2009, current upside momentum is a selling opportunity. Likely resistance is seen in the 1.49-1.50 area, filling in the gap left in early August and coinciding with the 50% Fibonacci retracement of the most recent down leg (07/23-09/11) at 1.4956. The next "soft" target for a short aims at t return to the 1.40 level.
For more details on EURUSD and outlook on the other major pairs, please see the latest Candlestick Weekly Report.
Currency Analyst - David Song
My picks: Short EUR/GBP
Expertise: Fundamentals Combined with Technicals
Average Time Frame of Trades: 2 Days - 2 Weeks
After finding near-term support around 0.7850, the EURGBP has bounced higher to hit an intraday high of 0.7979, but the underlying downtrend suggest that the pair should move lower over the following weeks. Price action has held within a tight range between 0.7925 and 0.7975 during the last few hours, but I expect the pair to break below its current range over the next few days. The downward trending channel in the euro-pound has favored a bearish outlook for the pair, and may work its way lower to test 0.7850 for support by the end of the week.
DailyFX
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