Since the market is pretty motionless, this is a good time for some big-picture analysis.
On the shorter timescales all markets seem to be directionless, as one can expect just before ECB in an NFP week! (On a side note – I wish the NFP and the ECB came in different weeks!). So I am looking at the bigger picture and trying to make sense of things.
I’ve observed lately (past 12-18 months?) that almost all pairs today seem to be driven by the DXY (the Dollar Index). I’m not sure which is the horse and which is the cart, but to me it is looking more like a DXY market than anything else. From the big picture for the DXY, we are in a dollar bull trend, but after breaking huge resistance at 82 we have just reached down-trendline resistance and we’re treading water there. The DXY may go down here for a significant correction, i.e. EUR goes up, or we may break thru this trendline in which case EU is going to below 1.29 soon.
Here’s a daily chart of the EURUSD:
Looking at the big picture in the EURUSD chart, there is a large potential H&S pattern with the neckline at 1.30. This is a huge level in the EURUSD. Last week’s break of 1.3000 has to be considered a false break as there was no follow through and the weekly close was above 1.3000. We are now likely to see a significant bounce here, at least to 1.3150. However unless EURUSD clears 1.3185 convincingly, the bias is still bearish. i.e. we could get a rise to around 1.3150 – 1.3180 and then a drop right through 1.3000, targeting 1.2830 first.
FYI my system trades currently are:
1. Short EURUSD at 1.3025 with a stop at 1.3075. I think this will get stopped out and reverse long EURUSD.
2. Short USDJPY from 93.25, SL at 93.75.
3. Long EURJPY from 120.11. This pair is hugging the trendline and in neutral territory really. With the EUR and JPY pulling in opposite directions, this is not a good time to be in EURJPY.
Given the uncertainties in the technical picture and the big event risk of the ECB, Italian politics and NFP this week, I think it is prudent to stay on the sidelines. I might just do that this week.