EUR/USD stable as we await the outcome for Greece
Despite the fact that time appears to be rapidly running out for Greece to strike a deal with its creditors, and European stock markets have reacted by heading south now for two months, the euro has remained remarkably stable.
In fact as I write today we are hovering around the lows of January and just below the highs for February and May. You can see in the chart below that we haven’t really gone anywhere over the last five months. The bear trend bottomed out in the spring and we managed a recovery from around the 1.0500/1.0450 area, but so far have failed to re-test those February highs at 1.1500/1.1530.
The red trendlines show a gently upward-sloping channel, demonstrating how the pair has managed to drift higher over the past three months. This relatively calm period has seen the 55-day moving average start to point higher and approach the 100-day moving average. This week these averages look likely to create a surprisingly bullish crossover signal.
It would appear the euro traders believe that one way or another Greece will strike a deal with its creditors in the final hour. If this were to be the case, it looks like a relief rally would finally break above those February highs at 1.1500/1.1530. When you consider that the pair has not suffered any panic over this whole ordeal, it seems unlikely that a positive outcome would create a longer-term move to the upside. However, I see a realistic target around 1.1700/1.1750 on any positive news.
I think the risks to the downside are greater because there appears to be some complacency in the market. If a deal could not be reached and a Greek default looked likely, we could see a move down to the 100-day moving average at 1.1035 and a break below the lower red trendline at 1.10980 could trigger a re-test of those March/April lows at 1.0520/1.0460. Obviously a break below this important support would signal the next leg down in the one-year bear trend and parity would look very likely indeed.
The DAX has been hit quite hard over the past two months suffering a decline of about 1500 points, or over 10%. Much of this fall has been attributed to worries over a Greek default and, with the market clearly in a short-term bear trend, a break below 10,800 would be an added negative signal for this market. Further worries over Greece would then be likely to see DAX futures test the February low at 10,593 but any further losses should meet strong support in the 10,500/10,450 area.
The chart above does not look particularly positive and you can see that the price has spent most of June holding below the 100-day moving average (the blue line) for the first time this year. In addition, the purple 55-day moving average has started pointing lower and it looks like only a matter of days before it will cross below the 100-day moving average. Many technical traders would see this as a longer-term sell signal.
Jason Sen – Technical Analyst & Trader
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