EUR and GBP Below The Highs of Forex Charts

EURUSD

Forex charts analysts analysed that for the time being, the strongest gains in 2013 in the S&P 500 would bring in some optimism to forex markets. However, this would stall the USD/CAD uptrend and would potentially yield insignificant gains for the British pound. Barclays said that the Emerging Markets currencies remain a strong outperformer, now that US yields have stabilised. Moreover, USD/INR would push lower and this means an improved prospect for Emerging Markets currencies.

USD vs. EUR and GBP

EUR/USD and GBP/USD are trading a bit strongly. BNP Paribas noted the busy schedule of ECB speakers continues. The broker believes that the EUR and GBP will struggle in the near term coupled with restrained rallies spurred by long speculative positioning in both currencies. Hence, BNP Paribas concluded that an end to the US political gridlock should result to both currencies vulnerable to a broader USD rally.

Technical Analysis

Barclays forex charts analysts argued that the lack of downside traction on EUR/USD makes them more neutral in the short term. It would take a break below support in the 1.3450 territory in order to suggest a deeper setback toward 1.3290. For now the broker expects further chop with the move above 1.3540 allowing a squeeze higher in range toward 1.3610.

Goldman Sachs forex charts analysts suggest to stay long position on the EUR/INR 6-month forward, opened at 84.56 (on a spot basis) on 30 Sep 2013, with a target of 92.00 and a stop loss below 82.00 (on a spot basis), currently at 82.88.

Meanwhile, the forex charts analysis of BNP Paribas noted EUR/USD cleared August’s 1.3449 high to confirm September’s dip to 1.3106 as a key higher low for an additional medium-term advance. The 1.3567 and 1.3644 highs have followed, interrupted by a dip to 1.3464. Another setback is now under way, they see the risk of this losing the 1.3449 to 1.3464 territory, delaying a further advance towards the year’s high at 1.3709 and then 1.3792 to 1.3795, warning instead of a deeper initial retreat towards 1.3326 to 1.3407 and possibly bull channel support, now at 1.3307.

FX Options

Forex charts analysts at Deutsche Bank suggest buying a EUR/USD 1Mx2M Forward Volatility Agreement. EUR/USD implied vol is flat while realised vol is trading at the same level and both are approaching historical lows. The current implied levels represent a good reward to risk ratio for buying short dated FVAs. This will serve not only as a hedge against low-delta event risks from US fiscal impasse, but for other investing reasons as well.

The other reasons would be the potential for greater sensitivity towards the year end is high. Investor participation in EUR/USD were muted. This likewise coincided with vol treading lower. This was partially driven to the lack of clarity in the Fed’s non-action in September

Another rationale would be a more macro picture across different asset classes reveal FX vol trading at a huge discount relative to rates and equities volatility. The differential between the curves is the greatest year to date which contrasts the 3M EUR/USD implied vol that comprises abount 38% of the index volatility versus the equities vol. After the second Quantitative Easing, the trigger levels for the large move in EUR/USD vol have often been related with equities volatility moving by more than 5% like what happened this month. These could stimulate EUR/USD implied vols higher along with the US fiscal impasse and the undetermined grand coalition in the German elections.

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