Euro, Pound And Yen On The Cusp Of Breakouts as Liquidity Fades

Euro, Pound And Yen On The Cusp Of Breakouts as Liquidity Fades

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EUR/USD

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EURUSD volatility was stirred up through the early hours of Wednesday's session - likely a reflection of waning liquidity. However, despite the pick up in price action, there was no real threat of a significant breakout due to the lack of momentum behind these leveraged swings. Congestion is likely to remain in place for the rest of the week as traders wait for their ranks to fill out after the weekend before trying to force breakouts. On the other hand, shallow markets could very well leverage a premature breakout. Short-term momentum is pointing to a developing bearish bias which will put direct pressure on the double bottom and 38.2% retracement of the November to December bull wave at 1.3850/25. With congestion lacking below this level, a bearish break could see a sharp decline even in thin markets.

USD/JPY

Congestion has fully set in for USDJPY. This past week's worth of price action has developed a loose range between 91 and 90; but this tense trading band will not be able to hold up for long. The direction behind this pair's inevitable breakout will depend on price action over the next few days. If this chop can manage a daily close above 91 through low liquidity, it would disrupt the broader technical schema and help to establish the December 17th reversal as a potential trend change. However, this is the alternative scenario. The well-established descending trendline, minor Fib confluence and 20-day SMA will attempt to build enough pressure to push through 90 and retest multi-year lows.

GBP/USD

Like many of the majors, we need to analysis GBPUSD from a short-term and long-term perspective to establish a technical outlook. Short-term, there is a modest slope to the pair's progressive swing lows. However, this is not a clear channel, but rather an expanding one as highs have been rising as the market floor has fallen. This suggests the necessary momentum needed to product a genuine bearish break (this week's lows are the lowest since April of 2002) can't be found in these unusual market conditions. Now, taking a step back to the higher time frame, we can see that though this is a choppy decline, it is nonetheless a continuation of a major bear trend. As liquidity fills back out, bears will try to push GBPUSD down to 1.4000 and then to a retest of multi-decade lows at 1.3715.

USD/CHF

One of the most volatile pairs for the month of December may lose its momentum over the next few sessions. Ultimately, USDCHF spot is little changed from where it opened the week; but daily lows have risen and the rally this morning has already broken the steady, short-term trend that has guided price action since the December 18/19th relief reversal. The failure of this trend means the greatest source of technical pressures has been mitigated and the rising trend from March has greater relevance for the market. Congestion will likely dominate price action for the remainder of the week; and bulls will attempt to rally behind this development when liquidity returns after the weekend.

USD/CAD

Volatility has held out for the US / Canadian dollar pair, but direction is still absent as the market approaches the New Year holiday. A test (and failure) of the 38.2% Fib pulled from the widest point of the now clear ascending wedge has helped to confirm temporary resistance at 1.2375. With a loose support down at 1.2065, the market has established a comfortable range with which to spend the next few days in. When traders are once again ready to work on the next leg of the larger trend, they will target either the clear 1.3000 triple top or the rising trendline now at 1.1900.

AUD/USD

There is little attempt being made to charge AUDUSD volatility as liquidity quickly escapes the market for the year-end market drain. Nonetheless, technicals are still relatively well-defined for the Australian dollar. The rising trend from the November 20th reversal has fallen in line with the 20-day SMA to keep daily lows consistently on the rise. Resistance is less clear; but ignoring intraday highs, we can see that there is a clear hurdle in 0.70. Considering the steep advance of support, however, congestion is becoming very tight. While range conditions are typical during low liquidity periods, we may see a volatile break some time over the next two days as the market is left with little room to move. Momentum would suggest a bullish breech with any immediate rallies stalled around 0.7135.

NZD/USD

Like its Australian counterpart, the New Zealand dollar is stalling as the pool of market depth grows shallower and shallower. From a technical perspective, this means there will be little impetus for significant breakouts or a need for reestablishing direction this week. With a band of consolidation developing between 0.5865 and 0.5720, there is plenty of range to work with a skeleton crew of a market. Even if short-term resistance is overrun, it would disrupt the bigger technical pattern little. On the other hand, if the rising trend from the early December reversal is broken, the market would have to rethink the NZDUSD's medium-term outlook