EURUSD has bounced significantly in the last few weeks, having broken down from the 3 month bearish triangle. Technically, the breakdown has been invalidated. False moves create fast moves in the opposite direction, as bottom-shorters and top-longers bail. Now we are back in the same zone we arrived at in May. Should we expect a bounce? If so, how far?
The fundamentals of Europe are deteriorating rapidly. Far right politics are emerging in outrage against catastrophic mass-immigration. Turkey's currency troubles expose European banks to currency risk. It is probable that Turkey has initiated an Emerging Market contagion, which will negatively impact European institutions who invested in such markets in their chase for yield. The ECB has been telling banks not to buy Dollars, for it would reveal the weakness of the Euro. The politically correct narratives that have saturated European politics and economics is becoming unglued.
How could the Euro bounce??
Well, on the other side of the pond, we have the makings of a civil war brewing. There is now an open conspiracy to unseat Trump, by indicting those around him. The McCain funeral revealed the vitriol of the US political establishment - 'the swamp'. I personally have never seen the funeral of politician turn into a ideological rally, not least against a sitting president. The "swap" that Trump promised to drain is visibly outraged and is openly demonstrating its alliance against Trump. Now the "swamp" wants revenge.
This attack on Trump may dent the Dollar rally temporarily. The same effects may also be seen in the US markets. We could easily see a few weeks of choppiness in the DJI and SPX, as investors get nervous over the uncertainty of US politics.
Fundamentally, nothing has changed. The world will still demand the USD, and US Markets' rally cannot be stopped, save for a historic incident in US politics.
If the USD is to stall, we may also see Gold (XAUUSD) bounce too. Gold is also at significant support - see my long term view on Gold here:
But make no mistake, in the Euro and Gold, there is hefty support-turned-resistance, just as there are eager buyers in US markets.
In Gold, this resistance starts in the 1240 area and ends in the 1280 area.
In EURUSD, my technical resistance in is the 1.19 area, and then the 1.24 area.
So nothing has changed, but we may see choppiness and continued counter-trend moves. There will be opportunities to re-sell bounces and re-buy supports soon enough. For now, I recommend hedging any long-term positions with a DXY short, and remaining patient.
The fundamentals of Europe are deteriorating rapidly. Far right politics are emerging in outrage against catastrophic mass-immigration. Turkey's currency troubles expose European banks to currency risk. It is probable that Turkey has initiated an Emerging Market contagion, which will negatively impact European institutions who invested in such markets in their chase for yield. The ECB has been telling banks not to buy Dollars, for it would reveal the weakness of the Euro. The politically correct narratives that have saturated European politics and economics is becoming unglued.
How could the Euro bounce??
Well, on the other side of the pond, we have the makings of a civil war brewing. There is now an open conspiracy to unseat Trump, by indicting those around him. The McCain funeral revealed the vitriol of the US political establishment - 'the swamp'. I personally have never seen the funeral of politician turn into a ideological rally, not least against a sitting president. The "swap" that Trump promised to drain is visibly outraged and is openly demonstrating its alliance against Trump. Now the "swamp" wants revenge.
This attack on Trump may dent the Dollar rally temporarily. The same effects may also be seen in the US markets. We could easily see a few weeks of choppiness in the DJI and SPX, as investors get nervous over the uncertainty of US politics.
Fundamentally, nothing has changed. The world will still demand the USD, and US Markets' rally cannot be stopped, save for a historic incident in US politics.
If the USD is to stall, we may also see Gold (XAUUSD) bounce too. Gold is also at significant support - see my long term view on Gold here:
But make no mistake, in the Euro and Gold, there is hefty support-turned-resistance, just as there are eager buyers in US markets.
In Gold, this resistance starts in the 1240 area and ends in the 1280 area.
In EURUSD, my technical resistance in is the 1.19 area, and then the 1.24 area.
So nothing has changed, but we may see choppiness and continued counter-trend moves. There will be opportunities to re-sell bounces and re-buy supports soon enough. For now, I recommend hedging any long-term positions with a DXY short, and remaining patient.