A top in EUR/USD is looking a lot more compelling now after a pathetic spike through 1.20 quickly fizzled out. Typically, the breach of a key psychological level which contains a wealth of option barriers and triggers is exaggerated, but with expectations of this break running high for weeks, mkts were able to hedge and prepare for such a scenario, in turn spurring profit taking on longs and ripping the pair lower. With a new downside catalyst, that being ECB’s Lane stating ‘exchange rates do matter’, it finally aligns risks in line with overstretched EUR-and USD-positioning with have reached levels which are potentially contrarian in nature.
- 21-EMA @ 1.1816, the steady mean-reversion line which has kept the bull mkt alive, is the key pivot we are paying attention to. A breakdown could render a more pronounced corrective regime into 1.1694 (August low), 1.1648 (50-EMA) then 1.1520 (38.2% fib).
- Bearish tactical momentum divergence is indeed bolstering the bear pressure. Close < 50 to confirm s/t sentiment change to the downside.
- Strategically we are still bullish. EUR/USD longs have made money so expect deeper dips to be purchased (at this moment in time). Profitable trades are almost always re-established but do take this with a pinch of salt.