Important -and healthy- buyer´s response, at the moment, right off 1.3325.
However, below is the English translation of last night´s post regarding possible scenarios facing the €uro into the following days. …
Some of the alternatives we handle this week in regard to the €uro
We reiterate some of the dynamics currently affecting global markets from a fundamental perspective.
– The question of the level of intervention by the Fed as a theme that dominates the agenda of markets,
– The geopolitical situation in the Middle East, particularly in Egypt and Syria currently
– The “breathing” summery Europe has been experiencing at least temporarily
– China Stagnant, soft landing or recovering?
– Emerging Markets –
In that sense, we hereby define the following four areas within which we think the game of supply and demand will be developing, updating the new highs made last week.
Last week (August 19-23)
Current week (Aug. 26-30)
Our note of August 8 raised some alternatives around the level reached last week … We wrote back then :
As an idea, we believe that the €uro deserves some “rest” after a full retraction downward movement that began back in mid-June. This is why a hypothesis to find a new equilibrium zone appears as an interesting alternative.
In that sense, it is important to note that this is not a minor level and, as we said above, we will be looking into further extension , maybe up to 1.3450, as an important area to define a new area of balance, unless we find increased buying pressure, hypothesis developed at the end of the note.
In this regard, during the past week, buyers defended the 1.3315-20 band, arriving on Tuesday August 20th to precisely verify our hypothesis binto 1.3451, reaching the €uro maximums around this price.
What can we expect into the following days?
Things have not changed much since our note last week. We Reiterate that it is important to note the (wide) area of balance between 1.3450-1.3170 as the current scope. Constraining a bit into 1.3400-1.3300, as a first approach.
Particularly, it is important to note the 1.3410-1.3395 area, which currently has attracted sellers. We believe that this, at least in the short term, is a key point, followed by 1.3355, into the very short term.
As an idea to work in the next few days, we noticed a compression of the range between 1.3400-1.3350, as a sign of increased stored energy is denoting the struggle between supply and demand that we monitor from reading the order flow. This is verified by the repeated signals that we our dynamic pressure indicators are providing , as indicated in the chart below.
A possible price improvement of these levels, will be putting in looking into 1.3400, followed by 1.3425-1.3415. Above this, we’d be working with a retest of 1.3450. In that sense, this would indicate a high level of conviction on the part of buyers. Currently, It is not possible to know if this level will broken into one or more attempts, but what we see is a constructive action by buyers . Our dynamic pressure indicators, are now aligned with this hypothesis, around 1.3356.
In that sense, the following are key levels in which we will be expecting some sort of Reaction In Price :
1.3640-1.3680, as extended targets.
1.35991.3612 y 1.3640-1.3680, as extended targets.
1.3578-1.3589, pointing 1.3580 (important)
1.3463-1.3436, pointing 1.3454, as noted during last week´s post
Returning to the previous point -which at least today and now seems to be the most solid hypothesis-, provided the key to the 1.3390-1.3380 area can not be overcomed by an increase in demand, we will be looking at a bearish scenario, aimed at the retraction of price action.
In that sense, we believe that increased selling pressure into 1.3330-1.3320, would lead us to look at the following levels, which would likely be leading the €uro into 1.3310-1.3305.
So, again, we repeat last week levels, where we expect a Reaction In Price.
It is important to note the intensity of the price action, specifically into1.3305 as an immediate level. We believe that a lack of commitment on the part of buyers at this level, could lead to the €uro to revisit lower levels.
Particularly, as a more immediate level, we will be looking into 1.3278, 1.3275-1.3230, 1.3264-1.3254 promptly, then look at the weekly support 1.3220-1.3203.
As a scenario, we are working with 1.3140 as extended target, provided 1.3200 ‘s do not get defended, with particular emphasis on the 1.3190 and 1.3172-1.3157, with emphasis on 1.3160, according as we have maintained in the previous note.
In this regard, we refer to the levels of the notes August 8 and July 26, which are transcribed below:
Following this line, we believe that a break of 1.3140-1.3120, could lead to the €uro to test 1.3100, which does not attract buyers, would lead us to focus on the 1.3078-1.3060 as an important line of defense in the coming days . Failure to provide an incentive to the participation of buyers near these levels, cautious and we would look at 1.3000-1.2970 and 1.2940 later.
Continuing the bearish scenario, we refer to the level of our note of July 26, 2013.
Provided this scenario, we would be aware of the following levels, where we would expect some kind Reaction In Price.
Finally, our order flow monitoring, we find a situation similar to the issues raised in the last three weeks of August with a significant increase in the levels of buyers last week.
In that sense, there only remains a single level of vendors positioned around 1.3410 the day August 23. Unlike last week, we found some positioning (albeit slight) by sellers, with only one level of shorts referenced.
In that sense, unlike previous weeks, we have an increase in terms of short positions as well as a retraction in price compared to recent weeks. Hence our caution, especially if the 1.3400 levels are not surpassed, mainly because there is a lot of long inventory embedded, and increased pressure from sellers, would probably imply a retraction in the price (order flow, drives price. Therefore, changes in terms of order flow precede changes in price). In that sense, please consider the levels mentioned above.
As usual, we will review dynamic positioning in the upcoming webinar to verify as price action developed around the various alternatives developed.