Euro Bulls Taken Hostage By Stop Loss Hunting Fans

Includes: FXE, UDN, UUP
by: FXstreet

EUR/USD continues vulnerable, having broken 1.2920/25 support ahead of Europe, with the sharp fall reaching new Friday's low sub 1.29, as prospects rise of a possible 20-day low once EUR exchanges hands below USD 1.2885.

The latest fall is believed to be yet another run into stop loss orders below 1.2920, after the pair retained throughout Asia the heavy undertone displayed in the American session, when a transition from 1.2980 high to 1.2940 low took place before the NY closing bell. For the week, the lowest remains Monday at 1.2885 (200 day EMA), and a high Wednesday at 1.3020.

As FXWW Founder Sean Lee explains: "It's a sad state of affairs but most movement in the market at the moment is caused by stop-loss hunting. The market finds a bias and starts building positions but with momentum and confidence lacking, tight trailing stops have become the norm. Once positioning gets to any sort of sizeable level, the market then turns and starts targeting the trailing stops. There's nothing we can do about this, it's just the way the market presently is so best we join in!"

Despite good performance in the Asian local markets, with Nikkei above the +1% threshold, European futures point for a slightly lower open. Gold is selling off to fresh session lows, last at $1709, and the USD index is nearing a key break above 80.30.

On the calendar domain, no EU sovereign debt auction activity this Friday. In London, an array of EUR-related data will be published ahead of the U.S. NFP at 12:30 GMT, with special attention to news coming out of Spain. Manufacturing PMI figures will take center stage this Friday, starting with Spain at 08:13 GMT, followed by Italy 30 minutes later, France 5 minutes after, another 5 minutes later Germany, and finally the EU PMI at 08:58 GMT.

In Greece, no decision on the disbursement of over 31.5 bln euros looms near, with Contributor Richard Lee, noting that chances are high "that Greece will become the topic du jour at least for the next two weeks."

Mr. Lee adds: "The notion is being supported by the admission of Spanish Prime Minister Mariano Rajoy that no bailout would be sought this year. Although Rajoy hasn't ruled out the possibility of a bailout next year, he is convinced that bond yields remain at a level conducive to recovery without assistance. This is likely to shift trader focus away from Spain, and on to Greece."

Technically, Valeria Bednarik, in-house Chief Analyst, notes: "Technical readings in the short term have turned negative as price stands below 20 SMA and indicators below their midlines. In the 4 hours chart, technical readings are neutral yet turning negative: repeated failure to the upside wills slowly eroded buying interest, exposing the pair for a midterm bearish run over the days to come, more if we close the week below the 1.2880 mark."

The current downward course in EUR/USD falls in sympathy with the latest predictions from Commerzbank FX Analyst Karen Jones, who earlier on the week anticipated the EUR/USD to first find bids towards 1.3025/45 near term, although an expected failure should set the attention south, targeting the 1.2803/34 level (200 day ma and October low).

Immediate support to the downside for EUR/USD shows at Tuesday's Asian session highs/23.6% Fibo retrace of latest up leg 1.2885/1.3020, and weekly/Friday's lows at 1.2885. A break lower paves the way to 1.2820, October 11 low. To the upside, nearest term resistance comes at 1.2920/25, support broken, ahead of Thursday' high at 1.2980, followed by October 25 highs at 1.3020.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.