EUR/USD Correction Likely but Credit Suisse are Staying Bullish

Technical strategist David Sneddon at Credit Suisse is still looking for the Euro to ascend against the US Dollar.

The call comes as the Euro’s strong uptrend against the Dollar pauses for breath with EUR/USD being seen at 1.1660 at the time of writing having gone as high as 1.1674 at the start of the week.

“EURUSD was unable to directly extend strength on Monday and is seeing high-level consolidation,” says Sneddon. “However, the near-term focus remains to view this as a brief pause ahead of a break above the 1.1685 high for a test of pivotal resistance and our core target at 1.1712/36.”

This level represents the analyst’s August 2015 high and the 38.2% retracement of the entire 2014/2015 downtrend.

“We would look for this area to cap initially to correct recent gains,” says Sneddon.

However, should 1.1736 be overcome, then it is argued an attempt at 1.1876, then 1.2000/42 becomes possible.

“Support moves to 1.1626/17 initially, below which can complete a small top for 1.1584, ahead of 1.1541/34. Price and 13-day average support at 1.1514/1479 needs to hold to keep the immediate risk higher,” says Sneddon.

HSBC's Donnelly sees Euro Correction

An interesting viewpoint on the Euro from Brent Donnelly, a Spot FX Trader with HSBC in New York who tries to explain some of the market dynamics behind the technical view that the Euro should pause for breath.

Why? Because Eurozone equity market "do not look good right now," says the trader.

In a note released July 25, Donnelly notes "European equities are the most crowded position in the world and they do not look good right now," and "If you bought CAC-40 at the open the day after Macron won, you are down about 3%. As EURUSD has been ripping higher and decoupling from interest rate differentials over the past 12 weeks, the explanation was that equity flows were the new driver."

Donnelly is curious as to whether the recent turn in European equities leads to a lot of T+3 selling of euros as most of the foreign buying was unhedged.

"My view is that EURJPY, EURCHF and probably EURUSD will see some meaningful selling over the next few days as foreign sellers continue to unwind unhedged equity bets," says Donnelly. "This should lead to a micro correction of 100 to 150bps."