By Fast Brokers
The EUR/USD sold off earlier today after German Prelim GDP and EU Flash GDP came in well below analyst expectations with downward revisions to their previous releases. The negative GDP data dampens optimism a bit and creates an air of caution while placing further downward pressure on the EUR/USD. On an encouraging note, today’s pullback comes on declining volume. Investors entered to support price once it approached 1.35 for the 2nd time in as many days. The stabilization comes after the U.S. reported better than expected economic data all around. The defense of 1.35 shows investors aren’t willing to give into the downtrend so easily while the EUR/USD pops off of our 2nd tier downtrend line. Meanwhile, our 3rd tier uptrend line and 2nd tier downtrend lines are approaching an inflection point, meaning the consolidation could end shortly. Unfortunately, the near-term momentum is still in favor of the downside due the disappointing EU economic data coupled with what some analysts deem overvalued U.S. equities. The EUR/GBP is under some downward pressure, further emphasizing the relative weakness of the Euro.
One week after the ECB acted in rare unison to lower rates and purchase covered bonds, several governors have gone public with their discontent and seem defiant to avoid diving head first into quantitative easing. The return of instability in the ECB could cap any gains in correlation with U.S. equities since investors dislike uncertainty concerning future monetary policy. However, we’ve seen Britain’s quantitative easing policy have a positive impact on the Pound since the program’s inception. Therefore, investors may not be concerned of negative near-term downward pressure on the EUR/USD if the ECB does decide to expand its present alternative liquidity operation.
We suggest investors continue to keep a close eye on 1.35. For if this psychological cushion is pushed aside, we could see a sharp, near-term selloff towards 3/25 lows. On the flipside, if U.S. equities rally off of the positive economic data and the EUR/USD manages to participate hand in hand, watch for March highs. If March highs are conquered, we could see a nice, near-term pop. We maintain our bullish outlook trend wise unless 1.35 is taken out.
Fundamentally, we find resistances of 1.3579, 1.3604, 1.3639, 1.3659, and 1.3701. To the downside, we see supports of 1.3554, 1.3552, 1.3497, 1.3459, and 1.3416. The psychological cushion sits at 1.35 with a psychological barrier waiting above at 1.40. The EUR/USD is currently exchanging at 1.3582.
Market Commentary provided by Fast Brokers.
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