Technical Levels Prominent But Volatility Still High In Euro And Pound Pairs

Among the highly liquid and typically top market-moving euro and pound crosses, a common theme has developed: congestion ahead of major resistance. Both European currencies are in the midsts of potentially significant reversals; but technical overhead and fundamental questions over growth and rate policy are holding the markets back. However, with volatility still four times higher than the average level of activity just a year ago, the promise of a dramatic move is growing.

Currency Strategist - Terri Belkas

My picks: Short EUR/USD
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days

I'm sticking with my choice from Monday as EUR/USD remains in consolidation mode, and with the trend still bearish for the pair, I think a breakout to the downside could be imminent. Indeed, volatility is still very high throughout the financial markets, and this week there will be quite a bit of event risk on hand for everything from the US dollar to the Canadian dollar. Overall, much of the news should be negative for risky assets like carry trades and stocks, which tends to lead to US dollar strength since it is commonly treated as a "safe haven." As a result, this period of range-trade may provide a good opportunity to sell EUR/USD with a stop above the 11/10 high of 1.2926. The October lows of 1.2330 should provide some form of support for EUR/USD, but this pair tends to take aim on round psychological levels when price falls sharply so 1.20 may serve as a better target.

Currency Analyst - David Rodriguez

My picks: Range Trade Short the GBP/USD
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks

I'm a bit torn on the GBP/USD. On the one hand I've been forecasting that pairs are likely to range trade through the near-term, leaving a bearish bias on the GBP/USD--which now trades near the top of its trend channel. On the other, I see that traders are extremely net-short the GBP/USD according to our FXCM Speculative Sentiment Index. In fact, short orders currently outnumber longs by 1.62 to 1. All else remaining equal, this would typically be a signal to buy the GBP/USD as far as I'm concerned. Yet SSI signals likewise tend to be incorrect through times of range trading. On balance, I think a short-term GBP/USD drop is the more likely outcome, and I will trade accordingly.

Currency Analyst - Ilya Spivak

My picks: Short GBPUSD (pending)
Expertise: Macro Fundamentals, Classic Technical Analysis
Average Time Frame of Trades: 1 week - 6 months

Last week we saw the Pound lag behind the Euro: GBPUSD positioning was very similar to EURUSD, showing a Falling Wedge bullish reversal formation with RSI divergence as confirmation. However, sterling did not break out as the Euro did, moving lower to test the Wedge bottom once again. Current positioning sees the pair showing a very decisive Bullish Engulfing, with continued RSI divergence bolstering the case for an upswing. Look for a bullish correction to yield a favorable short entry into the dominant downtrend.

Currency Analyst - John Rivera

My picks: Short EUR/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 4-8 Days

I am bearish the EUR/JPY for the same reasons that I shorted the EUR/USD yesterday. We are seeing the 20-Day SMA serve as staunch resistance and the narrowing of its trading range makes it susceptible for a breakout. The re-emergence of fears in the banking system has suppressed equities today and may become a weighing factor for the Yen crosses. The 11/13 low of 117.66 is my initial target which is also reinforced by Bollinger band support.

Currency Analyst - David Song

My picks: Short GBP/USD
Expertise: Fundamentals and Technicals
Average Time Frame of Trades: 2 days - 2 Weeks

Inflation in the U.K. fell at its fastest pace in 11 years as the Consumer Price Index slipped to 4.5% from 5.2% in September, and may lead the Bank of England to aggressively lower the benchmark interest rate over the coming months in order meet the 2% target for inflation. Governor Mervyn King noted that inflation is falling at a faster pace than the policymakers had initially expected, and explicitly stated that the central bank will do whatever is needed to avoid deflation. The MPC expects price pressures to fall below the bank's lower limit of 1% for inflation, which suggests that the BoE will lower borrowing costs once again at the December 4th policy meeting. Meanwhile, after reaching a low of 1.4558 last week, the GBPUSD bounced back this week, but deteriorating fundamentals paired with the dour outlook for growth continues to favor a bearish outlook for the pair. Increased selling pressures may drag the pair back to last week's low over the stated timeframe, but a correction looks to be underway, and the pound-dollar may spike higher over the next few days before working its way back towards last week's low.

DailyFX

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