I don't look like much today;
When I pay my debts,
Possibly I'll own a bunch of new suits;
Possibly you still won't love me.

But, on Sunday evenings,
When I go by your neighborhood,
Dressed to kill,
Do you think I'll cherish you
As much as I do today?

Orhan Veli

“yes, I’m falling… how much longer till i hit the ground? “

Early Asian trading, EURCHF dropped 1 big figure from 1.5010 to 1.4912 after an opening at 1.5015 this morning.

On 26th of November, SNB did an early London session intervention after a low print of 1.5012.

So anyone dare to wake him up while market playing hide&seek with massive SL orders on the downside ?

How I wish, how I wish you were here.
We’re just two lost souls
Swimming in a fish bowl,
Year after year,
Running over the same old ground.
What have we found?
The same old fears.
Wish you were here.

Keen to catch a falling knife just for a retrace  when your core view is bearish which is been supported by fundamentals ( please read below ) and technical analysis ? It hurts.

Austria’s central bank and its financial market regulator have put Oesterreichische Volksbanken, the country’s top cooperative bank (and 4th largest bank), on a watchlist and asked it to find a new strategy, local newspapers were reporting yesterday.

Above was just the perfect headline for the bearish market to extend the lead through 1.45 from 1.4650s overnight.

A talk of 1.4500 vs. 1.5300 DNT option barrier coming out later on basically pointed  out the target on the downside and EURUSD printed 1.4503 lows just around the London close.

So far in Asian session, the low has been 1.4521 and despite AUD 3Q GDP +RBA comments, and a buyer seems to be holding it firmly around 1.4520-1.4530 area. I think 1.4455-1.4635 range will be in play on a FOMC day while market may be keen to square up the short positions before a key event.

I, once again, will try to catch the falling knife ( I know I said it hurts) and stay long from 1.4535 with a tight SL at 1.4500 against the DNT barrier while 200 days SMAVG merging at 1.4489 vs. fibonacci projection level on the back of 1.4775 double topside at 1.4485.  We may have a break of 1.4575 later on by London opening and may test the daily range topside at 1.4635 to take the profit on the long position.

Let’s drift away from intraday trading and talk about the overall EURUSD projection.

I started to have a little disagreement with my master ( God knows  how much I love+respect him) regarding to EURUSD recently, actually not recently since 1.4950 topside break.  In his own words yesterday,

well everyone wants to sell it still…. but all this stuff out of Austria and Greece along with Guha     makes sense to sell it. I have been wrong for a while now on it   and unwilling to go short down here, but it trades quite heavy. I find it hard to love dollars, I truly believe the mkt has mispriced the fed  and I don’t see a hike all of 2010. growth will slow and jobs will remain the key indicator saying USA is in the shite unless they fudge them even more.

He definitely doesn’t like the funding story which I use as an USD win/win argument in addition to my core  bearish EURUSD view.

If there is sell off in the risk due to US economy putting pressure on global equity markets on the back of low aggregate demand/expenditures as high unemployment rate leading to lower GDP, who is going to buy greenback as a funding currency ? In relation to IR differentials during equity based risk rally, we were told USD was suffering as market was funding the risk via it.

Regarding to core bearish EURUSD view on the back of technical analysis;

After a break of 55 days SMAVGs, market mostly tends to target 200 days SMAVGs  and in our case for EURUSD, the break of 1.4855 unleashed the doors for a test of 1.4165 in daily charts. 50% Fibonacci retrace of 1.6019 to 1.2330 drop is also at 1.4174 which means after a weekly close below 1.4595 this week, we will be queuing up for 1.4165-75 tp orders on the downside.

Regarding to fundamentals;

Below is from Citibank FX Weekly Round-Up, published on 12th of November last month and I think that’s one of the good piece of work recently by Citi which suggests that the historical range of US5Y yields-US2Y yields has a reflection on EURUSD and its turning points.

So essentially the 20 year range for this chart has been encompassed by 2 levels (minus 20 and + 160 basis points). It has moved marginally through these levels on both sides 3 times each but has never been able to sustain a move further. Taking this 1 step further each time it has inverted more than 20 basis points it has provided us with 4 things.
o A base in the move
o A warning that “all was not right” leading to asset market stress and an economic downturn
o A Fed easing cycle.

Another interesting thing to take a look;

Option market having a very extreme downside pricing for  EURUSD on 3m 25r RR and 2 years correlation suggests that EURUSD spot has further room to catch on the downside, especially when the extreme level is almost same as last year when the issue was USD funding issue related EURUSD selling.

While US economy and spreads working that way, how about EU ? Is Germany enough to propel the whole EU economy while IMF estimated that EU banks have only written off 50% of their bad debt, and the potential for major defaults in Eastern European nations ? or Spain and Ireland will be ignored while more outlook downgrades on the way ? or the Greek fiscal deficit and exposure of European banks ?

1.4165 is the short term target in EURUSD on daily chart as mentioned above, I think it is possible to trade 1.3740 ( 38.2% of 1.6019 to 1.2330) with regards to weekly chart while my 2010 EURUSD downside target sits at 1.3465 which was the break out  level of bearish trend( low of the weekly close)  in May, 2009.