To me, the odds look stacked against the Euro. I will be looking for the current rally to provide selling opportunities over the next week or two
Brexit saw the Euro drop out of its established trend channel on Friday.
However, it wasn’t long before markets started focusing on Brexit’s implications for the Fed. Increased political risk and a lower global growth outlook quickly put the sword to expectations of a Fed rate hike. Markets are now pricing little chance of a Fed rate hike over the next 12 month. This saw the US Dollar sold and EURUSD bounce exactly off a harmonic AB=CD chart level on Friday.
Despite this bounce, the odds look stacked against the Euro to me:
- If the political risks start to escalate, the Euro will be under pressure. Amongst other things the ECB may attempt more stimulus in these circumstances
- If things go the other way and the economic outlook improves, markets will begin to price a higher probability of the Fed tightening. This would also be bullish $US and bearish EURUSD
With this point of view in mind, I will be looking for opportunities to sell EURUSD into strength. Over the next couple of weeks there may be possibilities to sell based on a failed re-test of the old channel support. These could easily be associated with a rejection of either the 61.8% or 78.6% Fibonacci retracement levels.
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