I am mindful of the impact that today’s movement away from risk is beginning to have on currency pairs. This should ultimiately play out as Yen strength and a correction in forex majors. Gold is also a beneficiary of this. Stock indices are the main focus of the downside pressure today.
EUR/USD had been drifting lower and is now settling sideways, but the reaction high at $1.3876 from yesterday’s high remains intact. I still anticipate the Euro to weaken back towards the support band that starts at $1.3824 but it is proving to be stubborn today. This is despite the trading outlook today which has started out being a reduction in risk appetite. I am running a short position and would view a rally as a chance to sell.
GBP/USD has breached the key reaction low $1.6581 and now opens the very real prospect of a completed top pattern which implies a move back towards $1.6480. Having formed a low at $1.6566 today a pullback rally is underway. Although I would expect this to be sold into today and there looks like further weakness on the way for Cable.
EUR/GBP has broken out today! A move above resistance at £0.8350 has completed a base pattern which in the least implies upside towards the December high at £0.8466. Momentum indicators are a touch stretched near term but the strength of the breakout is impressive. This marks a significant turning point in the relative relationship between the Euro and Sterling over the medium term.
USD/JPY is similar to the top pattern on Euro/Yen and the confirmed move below 102.83 (today’s low is at 102.63) suggests that 102.25 will be seen. I would be looking to use a rally back towards the neckline support turned resistance is a chance to sell.
Gold has had a strong move higher, but I am loathed to buy it. Aside from the bearish divergences on daily momentum, the hourly RSI is also towards 70 and looks stretched. I am concerned still that this chart has the potential for a sharp correction at some stage.