Bear Flags in EUR/JPY, EUR/USD Collide with FOMC This Week

By DailyFx | Updated July 30, 2014 AAA

DailyFX.com -

Talking Points:

- Euro has been stuck in ranges since ECB; EURUSD ~40-pip daily range today.

- EURJPY and EURUSD might be in bear flags pointing to fresh lows.

- See the most important data this week on the DailyFX Forex Economic Calendar.

Despite a cascade of geopolitical headlines over the past 72-hours - civil war sweeping across Iraq and Russian company Gazprom shutting off gas supplies to Ukraine - FX markets are rather tepid as they continue to keep the most important of the event of the week in focus: the Federal Reserve's June policy meeting on Wednesday.

Indeed, tight ranges have persisted across most of the majors and major crosses, with no more than 40- to 50-pips seen in what has been quiet price action to start the week. We can't dismiss the likelihood that, with World Cup festivities beginning at the end of the European trading day, North American trading sessions will be far less predictable and more erratic - even if that's a result of lower trading volume and thinner markets.

In any event, the low volatility environment should be seen as a fog being lifted; the quiet conditions allow for prolonged examination of the market without a great risk of 'missing' the significant chunk of price action. Our observations today point us to the EUR-crosses, as both EURJPY and EURUSD have narrowed into tight ranges relative to their recent lows seen around the ECB meeting.

In both the EURJPY and EURUSD cases, it's difficult to envision a scenario in which the significant levels of support (EURJPY: ¥137.85; EURUSD: $1.3502) give way with relative ease. That being said, today's readings of the FXCM Speculative Sentiment Index (SSI) for EURJPY and EURUSD both show net-long positions among retail traders, and as a contrarian signal, it implies a bias for prices to head lower.

Read more: US Dollar Needs Optimism from Fed as Q2 Data Starts to Slip

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