Euro and Pound Monthly Outlook - September 2011

Weekly Update - September 02 close

EUR/USD

Over the last three months, the Euro-Dollar has been closely following the previous descending trend line with subsequent pin bars, after April’s break and May retest of resistance level 1.4200, mostly ranging between 1.4000 and 1.5000, and remaining above the 23.6% Fibonacci retracement. August ended on a doji and this month has started to the downside as most other pairs due to the bad US NFP data. We seem to be bound for another retest of the broken trend line and 1.4200 support and might retrace further (most probably to a stronger support at the 38.2% level – 1.3800/20) to gather new impulse towards the highs near 1.4940/50.

A bearish week for this pair but still in range and reaching the tip of a symmetrical triangle. Price has closed above the three moving averages (SMA34, 100 and 200), at a level that has remained constant since the SMA200 break in mid-March. I would expect a break to the upside towards May highs (around 1.4940).

On the Daily charts, the price has been hovering around both SMA34 and 100 but still above SMA200, in a slightly ascending sideways move. Friday ended barely below psychological level 1.4200 and might fall to the 61.8% retracement on the 1.3840 to 1.4550 swing high, and I expect it to resume the actual range upwards and break last week’s high for further extension to 1.4820 (138.2%) as first target, then to the next level near round and psychological number 1.5000 (1.4990).

GBP/USD

The Pound-Dollar has been forming a symmetrical triangle in a wide ranging pattern since early 2009, and evolving at the top of that range over the last semester. The inverted flag seems quite eloquent and would favor a bearish continuation, however another attempt to break 1.7000 level could occur. I would rather expect a further fall towards the base line of the triangle though, targeting 1.5400/1.5380 as first target, a level which seems strongly supported. If broken, the next step would be at the 61.8% Fibonacci retracement on the previous swing high, around 1.5200.

Another bearish week for the Pound-Dollar, inside a triangle formation. We could be having a Head and Shoulders formation on the weekly charts with a neckline around 1.5900, giving us a projection to the downside to at least the previous lows (1.5350) and aiming to round number 1.5000 on a second step.

On the Daily charts the price remains above the SMA200 and could either turn back for a retest of the highs near round number 1.6000 or break below and reach the 138.2% or 161.8% extensions (1.5920/1.5800). I would wait for a clearer direction to confirm the bearish continuation of this pair.

EUR/GBP

The Euro-Pound has been building a steady support level above the 38.2% Fibonacci retracement on the previous swing low, and after breaking the descending trend line last April. Both currencies have mostly been ranging against the USD, however I would expect the Euro to show a greater strength soon and bring this pair above a 61.8% retracement for a bullish continuation. For now, I think it will continue within the same range and favor a retest of the previous highs and further push towards 0.9200 over the next months.

Last week was bearish and closed above the confluence of SMA34 and SMA100, reaching again near the 50% correction on the previous swing high, still inside an ascending channel. The pair is mostly ranging but as said above, I would expect further continuation to the upside on a medium-term approach, towards the upper line of the channel and previous highs (0.9070/80). Should the moving averages be broken, a test of the bottom line and 61.8% retracement (near 0.8600) is highly possible.

On the Daily charts, the Euro-Pound almost retraced to the 61.8% and could continue to the SMA200 and previous lows near 0.8650, with possible extension to 0.8580/50 (127% and 138.2% Fibonacci levels). I would watch closely the behaviour of both EUR/USD and GBP/USD to determine a longer term outlook, and in the meantime follow the ranging pattern of this pair.