Flat on EUR/USD

I am currently out of the EUR/USD and plan to avoid trading it for a for weeks/months. I am not sure what it will do going forward, but my bias is slightly bullish. If EUR/USD does happen to rally to 1.35-1.40, I will at that point look to re-initiate a short position.

You can see in the chart above that the EUR/USD did respect the trendline resistance I wrote about at the end of July. However, the selloff was very sharp, and a little too “obvious” in my opinion; i.e. anyone observing would now assume that the downtrend is back in full force. I think it will take some more time to neutralize the bearish EUR sentiment, so it would not surprise me to see a rally to 1.35-1.40. Either way, I have no risk on EUR/USD at the moment, so I don’t whatever happens.

EUR/CHF might be ready to enjoy a rally!

EUR/CHF has been down 12 out of the past 14 months. This is understandable, given the debt problems in Europe, but at some point the decline is over-extended. I think this time is nearing, and I am willing to make a long bet on EUR/CHF. As long as EUR/CHF doesn’t have two monthly closes below 1.28, I’ll stick to my guns.

Take a look at the 20y weekly EUR/CHF chart above. First, notice that price is holding at a very long-term support trendline. While price bounced off this level last month, I think it will take more than just one month to resolve the demand that this trendline should create. Also, notice that RSI is beginning to form divergence with price, so as long as 1.28 holds on a monthly closing basis, this RSI divergence should support prices into the future.

Now take a look at the 5y daily chart. First, I find it interesting that from the Oct 2008 low, price consolidated in a triangle formation. As I’ve posted about many times before, triangles often form before the final move in a trend, and once that move completes, the trend reverses. Second, notice that the decline out of the triangle has been parabolic, in a clear waterfall selloff. Once these patterns terminate, they often mark the end of the move for an extended period as the excesses of the move resolve. Finally, notice that the Oct 07—>Oct 08 move is about the same size as the Jun 09—>Aug 10 move.

These indicators tell me that 1.28 should prove to be strong support, and I expect to see a rally soon commence, with a target of 1.45.