There is little doubt in my book that the euro is one of the most fundamentally unstable currencies the market has to offer. Forecasts for growth are tempered by those members that are struggling to initiate a recovery while their policy options are limited. For interest rate projections, the central bank will not hike rates while a number of its members face potential default and thereby threaten instability for the entire EMU. Then there are the financial problems themselves. Greece may have lost some of its fear factor over the past week; but the burden it entails for the Euro Zone is significant. Greece will not likely meet its deficit cutting programs in the long-term; and in the short-term the country will struggle to roll over its debts, much less pay them off as cuts to government spending reduce vital tax revenues. What makes this a truly complicated issue though is the fact that there are a number of member economies that are struggling to secure a recovery under the difficult rules laid out by the EU. While the market may be able to ignore these troubles for a short time, they will undoubtedly come back to pain the euro not far down the road.
With a bearish fundamental outlook on the euro; I can fit my long-term biases into a more immediate technical and economic backdrop. I remain short EURGBP after its successful test and retracement from the 200-day SMA. This makes for another good range setup for half the position; but the overall outlook is more atuned to a break from the 0.8830 / 0.8660 range. The short position in EURUSD I took up last week is still in place. As a stop, I am using the top of the descending trend channel that connects highs from Jan 26 to Feb 3 to Feb 17 along with today’s intraday peak. With such a heavy euro-bearish bias, I am looking to take a reduced-size EURAUD long on the consideration that the pair is fundamentally overdrawn (at least temporarily) and it is bouncing off a the floor of a descending trend channel (which connects lows from 5/7 to 6/11 to 10/19 to 2/18). I will set a stop with a little distance below 1.50 and set an open target near 1.55 that I will probably move up with momentum my primary consideration.
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