By Fast Brokers – The EUR/USD is selling off again today following yesterday’s pullback on substantial volume. Rising volume to the downside is an indicator that the pullback may carry some weight. With our 1.4117 support being tested, we could see further retracement towards the psychological 1.40 level. However, the EUR/USD also has our 1st and 2nd tier uptrend lines to the downside. Therefore, the present pullback could still be a pattern of healthy behavior. Although, the rising volume on weakness is certainly a cause for concern, and raises a red flag. Hence, we recommend investors maintain a neutral stance until we see whether present supports can hold.
The current selloff comes in reaction to weaker than expected employment and services PMI data from the U.S. More importantly, Fed Chairman Bernanke stressed the fact that the U.S. will need to limit further debt-creation and unwind the injections of liquidity as soon as possible to prevent the Dollar from experiencing a major destabilization. In other words, the U.S. may tighten its monetary policy sooner than investors expect. Bernanke is successfully changing the psychology of a rapidly depreciating Dollar, at least in the near term since we have seen the Dollar strengthen strongly across the board.
Speaking of central banks, the ECB met today and kept its benchmark rate unchanged at 1%. The ECB is also standing pat on its level of liquidity injections including the 60 billion Euro purchase of covered bonds. However, the ECB is chaotic as usual, with dissenting viewpoints surfacing from its governors concerning future monetary policy. Therefore, the ECB meeting has left the EUR/USD with a tinge of uncertainty as always. The EU is done with economic releases for the week, meaning the performance of the EUR/USD will likely rely heavily on the U.S. equities. We’ll get some more important unemployment data over the next two sessions. If the numbers disappoint, the EUR/USD’s retracement could pick up speed rather quickly. We have a negative outlook on the EUR/USD in the near-term due to the large volume to the downside. However, the medium-term uptrend is still alive and well.
Fundamentally, we find resistances of 1.4187, 1.4222, 1.4290, 1.4325, and 1.4374. To the downside, we see supports of 1.4117, 1.4078, 1.4024, 1.3987, and 1.3941. The 1.40 area serves as a psychological cushion with 1.45 acting as a psychological barrier. The EUR/USD is currently exchanging at 1.4118.
Market Commentary provided by Fast Brokers.
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