Yesterday, we posted John Taylor's observations on where the EURCHF is headed (much lower). Today, right hand man Jonathan Clark follows up with his views on the EURUSD, which the world's biggest FX hedge fund now sees as testing 1.260 if 1.3160 is breached (which it probably will be as today's break in the EURUSD with ES means the AUDJPY once again is the funding carry pair du jour). Additionally, FX concepts does not see the pair passing a 1.3610 resistance, and recommend selling any temporary strength above the mid-1.36 area.
The Day the Currencies Died
By Jonathan Clark, by FX Concepts
The euro made a collapsing decline on Tuesday and this clearly signals it has begun the aggressive phase of its downtrend. We concluded two
weeks ago the euro formed a major peak, but thought some of the stronger currencies could hold up for up to another two weeks. Based upon the price action seen on Tuesday it is clear that all of the currencies have begun downtrends. Not only were European currencies down by more than 2% on the day including EUR, HUF, PLN and RON, but substantial weakness was registered by AUD, MXN and ZAR as well. On the same day the euro broke through the bottom of an uptrend channel the British pound broke below a critical uptrend support. These factors convince us that the currency weakness is not just a European problem, although this is the greatest threat to the global recovery. Ireland is now in a position where it must get a bailout package if it is to keep from defaulting on its debt. However, the country doesn’t appear to have the political will necessary to pass the austerity measures required to secure funding. This threatens the long-term survival of the euro.
EUR/USD is nearly three weeks into a downtrend that should last for a minimum of several months. It threatens to be very aggressive due to political turmoil alone, and if the European economic recovery falters as well the decline will prove even more aggressive. Between November and June the euro fell by nearly 22% and since the peak of several weeks ago it has only declined by 6% - so it has a long way to go. The shorter cycles call for weakness into Friday when a minor low is due and it should fall to 1.3160 before making a recovery into Tuesday. The downtrend should then resume into the week of December 6 and possibly the following week before a medium term low is reached. Provided the 1.3160 area is reached during the next few days then we expect a further downmove to the 1.2600 area by the middle of December. The longer-term cycles call for the downtrend to last into February and probably into May.
We now expect the resistance between 1.3610 and 1.3630 to hold and any recoveries towards this area should be used as selling opportunities.