If there is a major Breakout

I am posting today in the my suitcase Saxo Bank's John Hardy view about the possible path for the EURUSD exchange rate (currency pair). Hardy's analysis is seamlessly lucid, devoid of nuisance and bias. At the same time he recognises that failure to predict the right direction of the Financial Markets isn't necessarily a disadvantage if proper behaviour is triggered.

'' EURUSD is breaking lower - here are the next targets. EURUSD is breaking what is arguably a head and shoulders area - poking at the last shreds of flat-line support at the 2014 lows just below 1.3480. A break lower begs the question - where next? If we are to take the classic head and shoulders target, the target is close to 1.3000, but if we take a more typical 100% extension from the top of the right shoulder (an extension of the wave from the top of the head to the recent lows), we get a target of around 1.3210.

Other Fibonacci retracement levels are also bunched in this area as well, with the 61.8% retracement of the move from the critical old 1.2750 area coming in around 1.3225 and the 38.2% retracement of EU-crisis lows in July 2012 coming in closer to 1.3250. So we'll call 1.3250/1.3200 the next major target zone lower if this break through 1.3480/1.3500 holds.''

Saxo FX SQUAWK - AUDUSD

John J Hardy at Saxo Bank:

''AUDUSD rally does not sit well with recent development in interest rate spreads. The recent RBA minutes discouraged the notion that the RBA is about to hike rates any time soon, while the US FOMC meeting, while dovish, only saw US rates at the front end of the curve move a few bps lower. Currently, even as AUDUSD is banging on resistance, the 2-year swap spread is near its lowest level since last September at around 226 basis points. The 1,000 day correlation of the spread with AUDUSD is 0.67 while it is a stunning -0.61 for the last 100 days. I doubt if the latter can be sustained for much longer.''