Currencies Locked in Holding Pattern Ahead of Key EU Event Risk

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By Joel Kruger, DailyFX Technical Strategist

Talking Points

All quiet ahead of EU Summit

Keeping a close watch on EUR/USD and USD/JPY

Bias still favors additional short-term corrective upside in Euro

For the time being, investors seem to be content taking to the sidelines until more clarity is offered from the EU Summit. There is really nothing new to write about going into today's session and we continue to keep a close watch on both the Euro and Yen with each of these markets likely to influence broader trade. For EUR/USD, the key levels to watch above and below come in by 1.2585 and 1.2440 respectively. A close above 1.2585 would likely open additional corrective upside towards 1.2800-1.3000, while a close back under 1.2440 would accelerate declines back to the recent 2012 lows at 1.2285. Meanwhile, USD/JPY has been showing some constructive tendencies, and we look for a fresh push higher beyond 80.60 over the coming sessions. Ultimately, any setbacks in this market should be very well supported ahead of 78.50.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD:

While our overall outlook remains grossly bearish, from here we still see room for short-term upside before a fresh lower top is sought out. Despite the latest pullback, the market still looks constructive in the short-term while above 1.2440 on a daily close basis. Nevertheless, a break and close back above 1.2585 will now be required to accelerate gains. Daily close below 1.2440 negates.

USD/JPY:

Some very constructive price action in recent sessions with the market clearing some critical short-term resistance by 79.80 and then breaking back above psychological barriers at 80.00. This now opens the door for a potential medium-term higher low in place by 77.65 ahead of the next major upside extension back towards and eventually above the 2012 highs by 84.20. Setbacks now expected to be well supported above 78.50.

GBP/USD:

Despite some intraday pullbacks, the bullish correction since early June remains alive, and we still see room for additional upside beyond 1.5780 and towards 1.6000 over the coming days. Ultimately, any additional declines are expected to be well supported around 1.5500, while only back under 1.5450 would compromise the outlook.

USD/CHF:

While we retain a broader bullish outlook for this pair, with the market seen establishing back above parity over the coming weeks, there still seems to be room for additional short-term declines while the market trends lower from the peak in early June. Ultimately, a break back over 0.9660 would be required to end the short-term bearish correction and open the door for broader bullish resumption. Until then, risks remain for a deeper pullback towards the 0.9200-0.9300 area.

--- Written by Joel Kruger, DailyFX Technical Currency Strategist

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