EUR Trading Outlook (19-03-2015)

EUR/USD Activity in early NY was limited. The market ignored an early widening of DE-US yield spread and broad based USD weakness as EUR/USD lingered near the 1.0600 area. Late in Europe’s morning a large swoon in the USD finally saw EUR/USD come to lift. Short covering brought the pair above the 200-HMA and it hit 1.0670 before pulling back a bit into the Fed. Upon the Fed announcement the pair saw algos whip the pair into a frenzy. A quick dip to 1.0615 reversed in an instant as the message had a dovish lean to it even after ‘patient’ was removed. EUR/USD then spiked near 1.0740 before dipping near 1.0660. Short covering saw that dip bought and the pair went on to test 1.0800 with subsequent dips from there bought as well as shorts scramble to cover. Bulls remained in control late in the day as the pair broke to new highs and had the 1.0825/55 resistance zone in their sights. The short squeeze may have legs still. Daily RSI has turned from deeply o/s territory and yield spreads have tightened. A break above 1.0855 opens the door to 1.0905/10. If that is cleared there is little resistance until the 1.1035/75 zone.

USD/JPY Importer and spec range-trading bids in the 121.00-10 range were chewed through before the London close, triggering an initial round of sell stops that were followed by more pronounced selling after the FOMC statement & SEPS were released. The daily Tenkan line at 120.97, the Mar 12 pullback low at 120.66 and the 38.2% of the 118.11-122.04 rise at 120.54 were broken below. Yellen’s presser helped to stabilize prices, but US interest rates have tumbled, particularly toward the front of the curve and this remains a weight on USD/JPY prices. Key support is at 120.07 from the daily Kijun & 50% of the 118.11-122.04 rise. O/B bearish divergence on weekly charts and a broadly o/b USD are clearly near-term headwinds, though a sustained setback would raise expectations of the BOJ doing QQE3 sooner than the current Oct f/c. EUR/JPY is also working off o/s daily and weekly conditions, today clearing Mar 11 high at 129.95 by the 61.8% of the 131.87-126.92 slide. The broader 50% retracement of the Feb-Mar slide at 131.80 and the daily Kijun there are in the realm, despite lingering concerns regarding Grexit and the pace and effectiveness of ECB QE.