Analysis | March 2, 2021

KTM FX Weekly: The near-term trend tilted infavor of sellers.

  • EUR struggled as UST yields rallied
  • EZ manufacturing sector is appearing as an increasingly bring spot
  • EUR crosses offer better risk-reward than major

In continuation to our last week’s article, UST yields continue to grab the attention. Finally, USDT 10year yields peaked at 1.55% last Thursday and fell back to 1.44% by the end of last week. Besides, German 10year yields started Last week at -0.322 and rallied to -0.2% before falling back to 0.34%. The magnitude of the daily rise impacted the sentiment of the financial market and unnerved some investors.

European Central Bank Executive Board member Isabel Schnabel said last Friday, “Changes in nominal rates have to be monitored closely and interpreted in the light of their driving forces.”

She concluded in a keynote speech that “The current era of low inflation and low-interest rates – which is unlikely to change in the near term in light of the pandemic – forces us to reconsider how monetary and fiscal policy should complement each other to protect the economy from large downturns and to minimize risks of long-term scarring.”

https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210226~ff6ad267d4.en.html

During the recent bond rout, EURUSD struggled to produce a clean breakout instead of marking a lower lows and lower highs pattern on the weekly line chart.

FX: EURUSD in February

February wasn’t a great month for the common currency in the past decade. Especially since 2017, the trend is clearly down in the month of February. Looking across the EUR crosses, we definitely should discuss the Swiss Franc.

Finally, after 14-month consolidation coming to an end and the pair rallied to 1.1060 to the target we set last week. Even though the daily and weekly RSI is overbought, we expect there is more steam left in this counter. We raise the target from 1.11 to 1.1250. A monthly close above 1.11 means we are going to see 1.1400, its 61.8 fib reaction.

Near-term support is located at 1.0950-1.0900 and 1.0740. Buying the dips favor the trend. EURCHF is following USDJPY’s footsteps in developing an inverse H&S pattern on the monthly chart. If you are EUR bulls, this is the cross we should add to your portfolios. If you are more interested in CHF crosses, then you should check out the GBPCHF, as the price action closed above 50MA (Monthly) for the 1st time since November 2015. Now the targets would be 1.3300 and 1.3500 levels in the coming days.

 Positioning:

Coming to our subject currency, EURUSD, EUR longs were trimmed to 19.9%, lowest since July 2020, according to Societe Generale daily research report.

 

Macros: EZ manufacturing sector is appearing as an increasingly bring spot, as per IHS Markit. 

The eurozone’s manufacturing economy performed strongly in February as operating conditions improved to the greatest degree for three years, as per the official press release by the IHS market.

  • German ifo Business Climate Index rose from 90.3 points in January to 92.4 points in February.
  • Annual inflation up to 0.9% in the euro area, according to Eurostat.
  • German’s February CPI rose 0.7% m/m.
  • Final Eurozone Manufacturing PMI rose to 57.9 in February vs. flash reading of 57.7 and up from 54.9 in January.

 Looking ahead, we will get y/y inflation reading and Final services PMI for EA. Besides, US NFP would grab some eyeballs. 

 TECHNICAL OVERVIEW

The common currency is somewhat weaker in the new month with an A-B-C corrective pattern in sign. Upon completion of the A-B-C on the 4-hour chart, finally, the price action is evolving into a corrective A-B-C pattern on the daily chart. On Tuesday’s early Asia session, the price is heading back towards its 100MA located at 1.2020. A decisive breakdown below 1.2000 could open gates to 1.1950; its’ point, A. 1.1800, would be the next key support level to watch if we lost 1.1950.

If the price starts moving higher, the resistance to look at is 1.2100 and 1.2150.  

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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