Despite mixed US reports, with Unemployment Claims of 311K beating the forecast 326K and Pending Home Sales falling 0.8% to two year lows, the USD gained more traction against the EUR today. The negative deposit rates and the possible quantitative easing signals from the ECB have put pressure on market sentiment, which is now weighing towards negative, favoring more losses for the pair.
Technical Analysis
Last week it was unclear whether the EUR/USD sell-off was a one shot dip in search for a decent support before the uptrend would continue, or if it was the beginning of a larger trend correction. With help of 20-20 hindsight, we can see how the first rally after the sell-off was actually a sign of weakness itself, with price pulling back after the 1.3875 pivot zone near the 61.8% fibonacci retracement level was reached. This lower high hinted that the uptrend was in trouble, yet the perfect double low that ultimately formed at 1.3748 added to the general confusion regarding the overall direction.
Today EUR/USD flirted once again with this support, this time closing below the 200 simple moving average on the 4H timeframe, yet another bearish signal. With the support now broken, EUR/USD is going to search for a lower low. Eyes are now set towards 1.3630 area, a strong fibonacci confluence coupled and a previous pivot zone. The secondary confluence is located between 1.3535-1.3550.
EUR/USD will technically remain bearish even if rallies test 1.3800-1.3830 area once again, as the lower high – lower low trend configuration will remain unchanged.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
