Euro Volatility to Dominate Market Sentiment this Monday
EURUSD Continuation Pattern | Breakdown or Correction?
EURUSD is still stalling around its current levels, after experiencing a wave of selling pressure in the past week. At that time, the ECB rate decision served as a strong economic catalyst that pushed the pair in a longer-term downtrend. For now though, it seems that bears are exhausted, which suggests the possibility of a retracement.
In that case, EUR/USD could retreat to the 1.3000 major psychological level, which has turned from being support into potential resistance. A higher pullback could take price up to the 38.2% Fibonacci retracement level, which is close to the 1.3100 major psychological resistance.
The line in the sand for the potential correction is around the 61.8% Fib, which is near the 1.3200 major psychological level. A strong climb past that level could be a sign that the price is starting to reverse off its downtrend already
Stochastic is still reflecting selling pressure though, as the oscillator is moving down from the overbought zone. This suggests that bears are still in control and might actually push for a downside break below the previous lows or the 1.2900 major psychological support.
EURCHF Momentum Off Intervention Levels | Potential Rally to 1.2200
EURCHF appears to be finding support off the 1.2100 major psychological level, which is close to the SNB’s intervention floor. Bear in mind that the Swiss central bank can intervene in the forex market in order to keep the value of the franc artificially weak.
Stochastic is reflecting a pickup in buying momentum, which suggests that price can climb higher from here. The next area of interest appears to be located around the 1.2200 major psychological resistance. A stronger rally from that area could push EURCHF up to 1.2300.
On the other hand, the lack of action from the SNB might lead the franc to rally further against the euro, especially since the ECB just cut interest rates again and indicated potential easing. A drop below the 1.2000 handle could mean more losses for the pair, as it would be taken to lows not seen in the past couple of years.
Volatility could spike during SNB events or when SNB officials give any hints on what the Swiss central bank has up its sleeve. Buying pressure might also wane and price might move sideways once stochastic reaches the overbought area.
GBPJPY Uptrend Channel Formation | Strong Buying Momentum
BPJPY is exhibiting signs of a longer-term uptrend, as the 4-hour forex chart is showing a rising trend channel pattern. However, price is already nearing the top of the ascending range, which suggests that its gains might be limited.
Resistance coincides with the 175.00 major psychological level, which might force the pair to turn and erase some of its recent gains. This could lead to a selloff back to the channel support near the 170.00 mark or at least until the mid-channel area of interest at 172.50.
Stochastic is already in the overbought zone, which means that the rally is already overdone and that sellers may be looking to jump in soon. Once the oscillator moves below the overbought zone, an early selloff might take place even before GBPJPY tests the 175.00 mark.
The Scottish referendum could pose a huge event risk to this trade, as a winning “Yes” vote could lead to pound weakness and even possibly a break below channel support. On the other hand, a winning “No” vote could lead to more relief rallies and a potential upside break from the rising channel resistance area. This event is set to take place on September 18, which suggests that early polls could continue to influence price action for this trading week.