With an agreement having been reached overnight on a bailout deal for Greece, the immediate threat to the euro from a potential Greek exit of the currency has been alleviated for the time being. With respect to the EUR/USD currency pair, as the looming crisis for Europe and the euro has been tentatively averted, and the recently turbulent Chinese equity markets continuing on a partial recovery path from last week, attention has now been directed from the euro back to the likelihood of a Fed rate hike later this year. If this is to be the case, the US dollar could continue to be supported and the EUR/USD could continue on a bearish trajectory.
In the aftermath of the Greek bailout agreement, EUR/USD dropped below 1.1100 once again on Monday, continuing its recent fluctuations around this key price level. For the past two weeks, as the Greek financial/political drama unfolded, the currency pair has had bouts of high volatility but has generally traded within a relatively tight consolidation range around the 1.1100 level.
This range has remained well below the 200-day moving average, and has also managed to stay mostly below the shorter-term 50-day moving average.
While direct pressure on the euro from the Greece situation has been lifted for now, if the euro continues to be weighted down and the US dollar is potentially supported further by an impending rate hike, EUR/USD could continue its long-term downtrend that has been in place for the past 14 months, since the May 2014 highs near 1.4000.
In this event, the next major downside targets continue to be at the 1.0800 and 1.0500 support objectives. With the 1.0500 level being in the vicinity of the currency pair’s March 12-year low, and also the recent site of this year’s rough double-bottoming pattern, any breakdown below that support area would confirm a continuation of the longstanding bearish trend.
Major upside resistance continues to remain around the key 1.1400 level within the context of the current bearish trend.
The Japanese yen recently surged due to its value as a safe haven currency during the latest swelling of volatility in China’s equity markets as well as the potential crisis for Greece and the euro. As both of these risk issues have been subdued for now, the yen has swiftly retreated off its recent highs against the US dollar. The dip in the USD/JPY currency pair hit a low around 120.40 last week, just above both its key 120.00 support level and its 200-day moving average, before rebounding as the market’s perception of risk abated.
With the combination of a decrease in risk perception limiting yen upside and an increased likelihood for a 2015 Fed rate hike supporting the dollar, USD/JPY could very well continue the multi-year uptrend that has lifted it from its lows below 80.00 in 2012 up to a 13-year high that approached the 126.00 upside target in early June.
On Monday, after Asian shares saw yet another surge and the Greek bailout deal was announced, USD/JPY rose sharply towards its resistance target at 124.00. Any subsequent break above this 124.00 resistance level could then target the original upside objective of 126.00. If this is to be the case, USD/JPY will have confirmed a continuation of its multi-year bullish trend after the recent pullback and consolidation.
Short-term downside support for USD/JPY currently continues to reside around the 122.00 level.
From time to time, 2021 StoneX Financial Ltd’s (“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.