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Andreas Zanin
Analysis | June 29, 2021

KTM FX Weekly: Ground is shifting

As the end of the second quarter near, the oversold G10 currencies continue to climb the lost height. The most significant new thing was the latest Fed dots which raise the volatility, and as a consequence, G10 currencies and Gold ended on the lower side to the US Dollar.

Federal Reserve meeting was the big event of the month:

There it is. The US Fed towering the dot plot in 2023 is the next big thing to the financial markets. So, this was the headline which printed on the printed and digital media. Finally, we came to know that central banks are preparing to remove legs on the gas paddle. Earlier it was Bank of Canada, followed by Bank of New Zealand and now it is Norges bank and Federal Reserve. Overall, in June Federal Reserve meeting was the big event of the month and it moved currencies big time.

This cosmetic change has bigger meaning, we sense this from the financial market reaction post the Fed meeting. At least Two hikes by the end of 2023 is the core theme for the markets in the 2H 2021. The moves we witnessed last week was a trailer and traders would be wise to prepare for what could be a bumpy transition. And we believe it was a USD short squeeze.

NOK, NZD vs CHF and JPY:

However, we are waiting for the June Fed minutes on July 07. We are six working days near to the minutes, and due course, the oversold G10 currencies have room to run. Whether they have limited headroom or fresh wave up would be revealed on July 08.

We will take long NOK and NZD along with our subject currency EUR against the low-yielding currencies Franc and Yen and the US dollar in case of USD weakness. As we noted last week, RBNZ will hike sooner than Fed, so NZD continues to outperform its peers especially positioned well against the US dollar.

Besides, the Krone and loonie retain their strength as long as crude oil sits at the top. For EURCAD, as long as 1.4820 serving a resistance wait for 1.4580 and 1.4440. A weekly close below 1.4580 strengths this view.

Now we are shifting focus to our subject currency, EURUSD, which rallied 100+ pips last week on the back of oversold daily indicators. On top of the oversold RSI, the bullish crossover RVI adds further short-term bullish bets-most likely to rebound to resistances ahead of Fed minutes.

3: 

The sequence of three weeks down and one week up was proved again last week. Looking at the past historical evidence on the weekly chart, since 2020 low thrice the price action fell three straight weeks including the latest fall.

 Data points:

The latest PMI figures showed that the EZ economy is recovering, as expected. Eurozone economy grows at the fastest rate for 15 years, and Recovery in German economy gains momentum in June, IHS market cited.

  • Flash Eurozone Manufacturing PMI at 63.1 vs. 63.1 in May-Unchanged.
  • Flash Eurozone Services PMI Activity Index at 58.0 vs. 55.2 in May-41-month high.

Looking ahead, we will see EZ inflation y/y but not a price mover. Besides, the US jobs report will be a critical event to focus on. Hence, dollar momentum cast the EUR trend this week again.

 TECHNICAL VIEW

The pivotal at 1.1850 offered decent support but the price action capped at 200MA around 1.2000. If the price continues to move higher, watch out for resistance at 1.2030 and 1.2100. If this price fails to hold 1.1850 this week, we could expect 1.1700 and 1.1600 before Fed June minute. If you are a EUR lover, we advise you to focus on EURCHF and EURJPY long trades.

Other pockets like EURNOK grab our attention, as they cross-tested 50MAmonthly for the fourth month in a row. Since July 2023, the cross manages to trade above Monthly 50MA. We will be worried if the price closes below 9.8950 weekly. In this case, 9.80 and 9.75-9.65 its 78.6-80% fibs.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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