Forex Flash: Is EUR strength a sign of USD weakness? - BBH
FXstreet.com (Barcelona) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman comments that he had previously pondered whether the Euro and the Mexican Peso, in their resilience, were generating the true signal of pending Dollar weakness, or whether the Yen, Dollar-bloc and Sterling's decline were signs of underlying Dollar strength.
He notes that the issue was not resolved last week and the Euro's strength helped pull the currencies in its orbit higher against USD, while the Greenback extended its gains against JPY, GBP and the Dollar-bloc.
He writes, "We had been persuaded by the potential double top in the euro near $1.34 and the divergence in the RSI that the dollar's gains were likely to broaden. However, news that the banks repayment of the LTRO funds was greater than expected, and the backing up of Euribor rates, pushed the euro through the ceiling. The next immediate target is near $1.35, which also corresponds with a 50% retracement of the euro's decline from its last attempt at $1.50 back in May 2011. The $1.3400 area should now provide support for the break out."
For medium and longer term players, Chandler feels that the 1.35 area is important and appears to be a neckline of a potential large head and shoulders bottom pattern that would, if valid, suggest a target close to 1.45. More immediately, he feels that a convincing break of 1.35 could spur a move towards 1.38. Chandler is expecting the Swiss franc to lag behind the Euro in the move against the dollar.
He notes that the issue was not resolved last week and the Euro's strength helped pull the currencies in its orbit higher against USD, while the Greenback extended its gains against JPY, GBP and the Dollar-bloc.
He writes, "We had been persuaded by the potential double top in the euro near $1.34 and the divergence in the RSI that the dollar's gains were likely to broaden. However, news that the banks repayment of the LTRO funds was greater than expected, and the backing up of Euribor rates, pushed the euro through the ceiling. The next immediate target is near $1.35, which also corresponds with a 50% retracement of the euro's decline from its last attempt at $1.50 back in May 2011. The $1.3400 area should now provide support for the break out."
For medium and longer term players, Chandler feels that the 1.35 area is important and appears to be a neckline of a potential large head and shoulders bottom pattern that would, if valid, suggest a target close to 1.45. More immediately, he feels that a convincing break of 1.35 could spur a move towards 1.38. Chandler is expecting the Swiss franc to lag behind the Euro in the move against the dollar.
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