The current refers to the English language translation of yesterday´s post (in Spanish) on some of our thoughts and ideas regarding the €uro into this week. It relates to the live session held last Thursday, August 26 held with FXStreet.es – The full recording could be found here (the webinar has been held in Spanish)
From a fundamental perspective, we continue to highlight the themes dominating the global agenda these days:
– The question on regards to the level of intervention by the Fed. Tapering When? How? How Much?
– The geopolitical situation in the Middle East, particularly in Egypt and Syria
– The current European “summer”, at least temporarily
– China: Stagnant, soft landing or recovering?
– Issues affecting Emerging Markets: India, Turkey, Brazil in the spotlight –
We continue defining price action within the following four areas in which the game between supply and demand has been developing.
It is important to note that the current price action is at the base of the 1.3450-1.3170 area.
August 30-Sep 6
The low volatility environment experienced during August, was interrupted during the last week of the month, according to the behavior that we were watching:
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 our dynamic pressure indicators are providing , as indicated in the chart below.
Following into this line of thought, we developed the possible scenarios facing into the (past) week, specifically pointing into 1.3400 as a key level
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.
Buyers pressured into the above reference levels. However, the pressure was not enough and sellers came to the defense, pushing the euro into a retracement of about 200 pips. In that sense, while we proposed different alternatives that could be present, we were aligned with the hypothesis of increased pressure from sellers:
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 overcome 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 into1.3310-1.3305.
Thus, we reiterate last week levels, where we expect a Reaction In Price.
It is important to note the intensity of the price action, specifically into 1.3305 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 that sense, price action not only verified our hypothesis, but targeted levels with absolute precision. We note this, not in order to “rejoice” (which is not the case, provided we are always attentive to the different alternatives developing in the market), but in an effort to emphasize that there is an underlying dynamic in the markets and that the possibility becoming aware of the different price action developments and key price levels, is there for us to use, provided we have the right tools and approach.
What can we expect into the following days?
It is important to note that there will be several key reports this week, added to the current state of global affairs. For now, ECB and BOE Policy Statement (Sep. 5), G-20 (Sep. 5 and 6) and Unemployment Report (Sep.6), among other economic events to consider. Also, remember that on Monday 2 is a holiday in the U.S., so we will have a short week ahead and lower volume on Monday. We believe in this sense that in the absence of any “exogenous” event -particularly in relation to military intervention in Syria, which we estimate would have an impact on markets volatility- we believe that the volatility of the €uro will tend to fall until the end of the week, where we have important announcements and events that might affect the currency markets.
As we noted back on Thursday’s session and in previous posts, we will be looking at the very short term into 1.3160-1.3140. In this regard, we reiterate once again the levels to which we pay attention, in which we´ll be looking for an eventual RIP (Reaction in Price)
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.
Alternatively, we believe that in order for buyers regain control a “mere” increase in demand will not be enough. However, we´ll be looking into the following levels
In that sense, we will looking at the breach of 1.3320-1.3300, as constructive, but we´ll be especially attentive to 1.3360-1.3320, and particularly to 1.3340, which would challenge buyers into regaining 1.3400-1.3385.
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 (referring to Aug.18)
Continuing with our usual approach, the monitoring of the order flow is pointing into a very peculiar situation. On one hand, inventory levels show an increase of buyers, compared to last week levels. However, the increase is not too significant.
It is important to note the current divergence between an increase in terms of long inventory (which remain close to a maximum) and the price level, which has experienced a significant contraction, not only at the four key areas marked at the beginning of this post, but into lows not experienced since early July.
As we notice, this is a key area in which we would be looking at the reaction from buyers around above targeted levels. At the time, our dynamic pressure indicators have verified the action of buyers.
We believe that failure to find a healthy and important reaction (whether in the form of a quick response or supporting current levels that might denote some sort of accumulation on part of buyers, as a prelude to higher levels of price), we will look then at lower prices.