From the Desk of Ian Culley @IanCulley
As I scrolled through my currency charts this weekend, the same three-word phrase kept popping to mind: “Can’t be short!”
Whether it’s the Swiss franc, the British pound, or the Thai baht, we can’t be short most global currencies against the US dollar. Not at current levels.
There is one major exception. It’s the euro.
Here’s a weekly chart of the EUR/USD pair:
At the beginning of July, the euro and the pound were resolving lower from multi-year consolidations. And we wanted to sell weakness on these significant breakdowns.
But, by the end of the month, the pound had reclaimed a critical shelf of former lows. What started as a significant breakdown in the GBP/USD began to look more like a failed move.
We flipped the book long GBP/USD and awaited a similar buy signal in the euro. But that signal never came.
While the pound is still above its support level, the euro has been coiling below its former lows for over a month now.
And it isn’t just the pound.
We’ve seen a lot of currencies recover crucial levels of support against the dollar recently. But the euro just couldn’t get it done. Instead, the principle of polarity kicked in, and support turned into resistance.
This successful retest in the EUR/USD is shown in the daily chart below:
Last week the EUR/USD pair ran into a confluence of resistance at a multi-month downtrend line and the pivot lows from last spring.
Those pivot lows also coincide with the 2015 and 2017 lows, marking the lower boundary of a multi-year range. This is shown in the first chart.
This was a logical level for the euro to find resistance. And it did while remaining in a bearish momentum regime.
As long as the downtrend remains intact and overhead supply exists at that shelf of former lows, the bias is to the downside.
Of course, that could change in the coming days and weeks. But we’ll need to see a daily close above 1.04 before we can entertain a meaningful trend reversal.
For now, we want to stay short the euro. And if and when the dollar reasserts its dominance, we expect the EUR/USD to lead the way lower.
Stay tuned.
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Allstarcharts Team