In our last update [see: June 28 Update on Currencies] we noted that EURUSD had broken out and was headed for a backtest of the neckline of a Head & Shoulders Pattern. The breakout seemed significant, as the pair had not only popped out of a channel dating back to Jan 2018 but had spiked above its 200-DMA too — the first time since May 1, 2018.
I anticipate DXY finding support at 95.469, EURUSD finding resistance at 1.1447, and USDJPY testing 105.48.
EURUSD never quite made it to 1.1447; the breakout was a headfake. The pair reversed at 1.1413 and dropped 4% to tag our 1.0988 target earlier today.
For its part, USDJPY easily dropped to 105.48 and reached the next downside target at 104.74 on Monday, a drop of 3.7% from its Jun 28 highs.
And, DXY bounced at 95.843 and has since rallied 3.7% as of today.
These are all fairly sizeable moves for currencies in two months’ time. Needless to say, the political turn of events in the UK has played an important role in the acceleration of EURUSD’s drop. But, it’s safe to say that interest rates and equity volatility have also contributed.
As our analog unfolds, we should see more volatility — an expensive pain in the neck for hedgers but an excellent environment for traders.
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