Euro, EUR/USD, EUR/JPY Talking Points:

  • The Euro has been in an aggressive bearish state over the past couple months, hastened by recent worries around Covid and the potential for more lockdowns and protests to those lockdowns across the continent.
  • EUR/USD is testing a major spot of support but if the risk-off trade envelopes markets, EUR/JPY may actually be more attractive on the short side.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Europe continues to struggle through Covid and while the pandemic remains a global concern, the fragile state of the European economy makes this a potentially disastrous scenario for the European continent. And while the Fed and the BoC and even the RBNZ have backed higher rate protocols, or at least the idea of them, the ECB has remained loose and passive throughout as the European recovery has lagged behind that of their trading counterparts.

The Euro has been a hard sell against the US Dollar since topping in May. This top developed around the 14.4% Fibonacci retracement of the 2017-2018 major move, and the 61.8% marker of that same study is what came in last week to help hold the low. This plots around 1.1187 and it syncs up with another Fibonacci retracement, the 61.8% marker of the ‘lifetime move’ in the pair, which resides at 1.1212.

This zone was last in play a year ago, holding higher-low support after recovery began and this took place after the same area held as resistance in late-2019 trade.

The question now is whether this spot can suffice as support or whether it’s a mere speed bump on the EUR/USD train-lower.

EUR/USD Weekly Price Chart

EURUSD Price Chart

Chart prepared by James Stanley; EURUSD on Tradingview

EUR/JPY

For those that are looking to take a bearish stance on the risk trade along with the Euro, EUR/JPY can remain of interest.

If we are, in fact, seeing a major disruption posed by Covid variants and a rise of Covid numbers, then logically we will see rates continuing to back down. If that happens, the allure of short-Yen carry trades is no longer as attractive, and as history has shown, that can lead to some pretty fast unwinding scenarios that bring on Yen-strength.

If the Euro remains weak to go along with that Yen-strength, this could make for an aggressive setup on the short-side of EUR/JPY.

The pair is currently working on a bearish engulfing candlestick for the month of November with less than two days left, and there’s a big price of support in-play at the moment around the current nine-month-lows.

A breakdown from that level opens the door for a push down towards 126.76, but this is a messy 118 pips as there’s been a number of wicks in this vicinity when prices were grinding higher around the New Year open.

EUR/JPY Weekly Price Chart

eurjpy weekly price chart

Chart prepared by James Stanley; EURJPY on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





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