Septembers mini storm hits the EURUSD
Tony Sycamore September 23, 2020 3:45 PM
After initially colliding with U.S. equity markets, the September mini storm reached the currency space overnight, as the EURUSD weakened to its lowest level since late July.
Another reminder that markets don’t operate in vacuums and of the invisible links that exist between various asset classes. This falls under the guise of Intermarket Analysis and is often used by professional traders either as part of their trading strategy or as part of their overall market analysis.
As a side note, for those interested in learning more about Intermarket Analysis and for holders of a funded City Index account you can sign up to a webinar I am hosting for City Index on Intermarket Analysis on the 14th of October here.
Returning to the currency market, in Mondays Week Ahead video here around the 3 minute and 50-second mark, the comment was made that the U.S. dollar index, the DXY resembled “a ball being kept underwater”, fighting to reach the surface.
The opposite was true for the inversely correlated EURUSD. The preference being for the EURUSD’s retracement to deepen before the uptrend resumes.
When analyzing how much lower the EURUSD can retrace, there are several factors to consider including;
- Month-end and quarter-end flows which can be tricky to navigate.
- The special EU Council meeting originally scheduled for September 24-25 has been pushed back to October 1-2. The meeting will be used by EU leaders to discuss the single market, industrial policy, digital transformation, and the COVID-19 pandemic.
- Continuation of negative Brexit and COVID-19 headlines in the short term.
The preference from a timing perspective is to rebuy the EURUSD towards the middle of next week. From a pricing perspective, I am looking for signs of stabilisation near wave equality support 1.1650. However, should the decline extend below 1.1650 there isn't much in the way of support until the 1.1570 high from early January.
Keeping in mind that should the EURUSD break and close back above the bottom of its recent range, lets say 1.1780 to give it some room, it would be an initial indication that a tradable low is in place and that the EURUSD’s uptrend has resumed.
Source Tradingview. The figures stated areas of the 23rd of September 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.