TV

John J Hardy
News of tough talks between Greece and the rest of the euro zone rattled the euro and that suggests that the recent rally in EUR has shaky legs to stand on, says Saxo Bank’s John Hardy.
Trade view / 14 February 2013 at 8:13 GMT

Selling EURUSD after Draghi, ugly Euro growth data

Head of FX Strategy / Saxo Bank
Denmark

EURUSD is on the defensive once again as France and Germany both reported worse than expected growth figures and after key technical support gave way.

Trade: Shorting EURUSD in 1.3380-1.3405 area
Stop: 1.3442 bid
Targets: 1.3290 and 1.3155

Arguments in favour of shorting EURUSD

  • The strong Euro is clearly hurting the Euro Zone economy. The ECB strategy thus far has only succeeded in protecting sovereign debt and the banking system and not provided any stimulus to the economy. The next phase will either see renewed tail risks over political disagreement over what to do next and how/whether to use the ECB’s powers to print money or we will see anticipation of a country, perhaps even France, asking for an official bailout in order to access the OMT facility, which could finally see a renewed expansion of the ECB's balance sheet.
  • Specifically, the ECB’s Draghi was out saying yesterday that the strong Euro is hurting the peripheral countries’ economies and this morning we had negative GDP reports from both France and Germany for Q4 this morning (-0.3% and -0.6% QoQ, respectively) and this could generate additional political heat on the question of the strong Euro
  • Technically, yesterday’s attempt through 1.3500 was roundly rejected and this morning’s follow through took out the important 1.3428 area that was important on the way up, so the implication is that the downside remains the side of least resistance in the near term as long as that resistance area holds.

Trade Management: If the pair trades through 1.3330, stops can be lowered to just above 1.3400 and if the pair trades through the first target, stops can be brought down to perhaps 1.3355 bid. The second target is just ahead of a 100% extension of the recent sell-off

Risk: we have a G20 meeting today and tomorrow that could produce statements surrounding Japan’s recent behaviour that could push the JPY back to the weak side if the statement is not seen as particularly forceful or providing a brake to Japan’s determination to weaken its currency. This could push EURJPY higher and affect other major Euro crosses as well.

Chart: EURUSD hourly

EURUSD_h

Chart: EURUSD

EURUSD_s

Chart: EURUSD longer term

EURUSD_l

 

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Non-independent investment research
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