Week Ahead FX Analysis: EUR/USD Correctional Move Off Of Support Levels

Towards the end of last week, we started to see some more considered moves in certain pairs with broad based U.S. Dollar strength.

May is typically the month to sell; potentially we could continue to see some USD strength in the month and broader based selling.

Following on from last week, we liked some correctional / flattening moves early in the week to re-establish larger order book determined positions.

EURUSD
The euro pushed lower Thursday and Friday, and has set itself up for a correctional move. Our order book systems continue to maintain short positions but we would prefer to re establish these at slightly higher prices, potentially around the 1.3050 or 1.3100 marks.

From our initial sell point at the 1.3200 level, we have now hit interim support in the form of the 200 day moving average and the bottom of the Ichimoku Cloud on the daily charts.
Typically, the Ichimoku clouds have worked relatively well on the euro daily charts, and the 200 day SMA often provides support


The 4hr chart also shows a nice low end stochastic cross, highlighting the need for a correctional move.
Our initial preferred play is for correctional longs on a 1/2 size position, which will be closed at an upper stochastic cross. The push lower late on Friday found support at the 1.2950 mark. We could see this pair moving higher or sideways in the interim.

Our main overall position will look to be an additional short from higher prices, dependant on the position of the order book.

We continue to keep an eye on the weekly chart, although last week's index cross and the momentum in Commercials to the downside suggest further strength in the pair. If the correctional long finds support, we would expect to see this in the order book as well as seiing our overall main position switch later in the week, dependant on price action.

There are some good early week risk events including CPI and GDP data out of European Countries. Thursday also sees a flurry of key U.S. data. If it comes in better than expected, it could also provide another catalyst for a late week sell off in the euro. Poor U.S. data could see this pair test highs again.

GBP/USD

We think the GBPUSD has room to move lower from these levels, but would wait for a correction before shorting this pair.
A move back towards the 1.5450 levels would offer better value.

We maintain our previous outlook on a weekly basis, and expect the pound to test the 1.5000 handle again this year.

Given BoE King's speech on Wednesday, we'll look for correctional moves around this risk event, potentially with early week strength.

USD/JPY
The pair finally broke the 100 mark and caused a bit of a rally in the Dollar, as orders were triggered to the upside. The 4hr chart indicates that a correctional move (blue circles) could be on the cards. We expect this pair to look to retest the previous resistance turned support levels, although we also note some banks are calling for a further correctional move.

Initially, we would look to play downsized positions for the short correctional move, with a view to re establishing long positions or new short entries on confirmation of a finished correction or a change in the order book positioning.

As is the case with the EUR, we note the COT positioning rapidly decreased Tuesday last week. Given the break of the 100 figure and timing of the report, it is likely to have moved again, but a reduction in the Non Commercial net long position could point to some topping action in the USD/JPY. Representatives from Japan last week commented on a market derived price for USD/JPY. Less intervention means we could see a much needed correction in this pair.