By Fast Brokers – The EUR/USD has taken a step up from the inflection point of our 2nd tier uptrend and downtrend lines despite unexciting economic data. Most of the PMI numbers from the EU today came in at or below analyst expectations while Germany’s consumer confidence surprised to the upside. The EU’s manufacturing and service sectors are still contracting since global demand has yet to pick up to pre-crisis levels. Overall, the data over the past 48 hours hasn’t been encouraging, yet the Euro is outperforming across the board. Therefore, the Euro’s appreciation may be a result of oversold conditions. It seems the EUR/USD may fluctuate between our 2nd tier uptrend and 3rd tier downtrend lines in a sign that investors aren’t willing to give up yet on the currency pair’s medium-term uptrend. This is good news for the bulls and the prospect of a global economic recovery since the EUR/USD managed to ignore a pullback in gold and equities while avoiding a technical downturn of its own. However, the EUR/USD finds itself facing the psychological 1.40 level once again, and our 3rd tier downtrend line could prove to be a worthy foe should it be tested. Hence, a near-term downtrend force remains despite the encouraging pop taking place. Investors should keep track of volume to see if the EUR/USD can register volume of 6000+ on a 4-hour up-bar. High volume to the upside could be an indicator of a changing tide in market sentiment from negative to positive.
Meanwhile, investors will be interested in the housing and durable goods data coming in from the U.S. over the next two trading sessions. Should the numbers disappoint, the Dollar may experience a rapid near-term appreciation across the board. Furthermore, markets will be paying close attention to the results of the Fed meeting ending on Wednesday. Investors will be interested in language from the Fed concerning its quantitative easing program and outlook for inflation. However, we don’t expect the Fed to make any surprise moves, and will likely state that inflation isn’t a worry at present due to rising unemployment and weak CPI data. On the other hand, we expect Bernanke & Co. reassure the market that the Fed will unwind its liquidity policies when the economy is stable enough to handle rising interest rates. However, if the Fed does suggest a rate hike in the near future and/or another form of liquidity constraint, the Dollar would likely appreciate rapidly.
Regardless of the outcome of the Fed meeting and upcoming economic data, we maintain our negative near-term outlook on the EUR/USD trend-wise due to the discouraging economic data from the EU today. Furthermore, U.S. equities are under selling pressure and are trading below the psychological 900 level. Additionally, we believe gold me an important downward movement technically during yesterday’s session. Hence, there remains a negative tone in the market and the EUR/USD should exercise its positive correlation with U.S. equities. Meanwhile, a medium-term uptrend is at play, meaning there are several reliable defenses on the way down should the EUR/USD reverse course.
Present Price: 1.3989
Resistances: 1.4019, 1.4052, 1.4112, 1.4147, 1.4198
Supports: 1.3947, 1.3847, 1.3807, 1.3759
Psychological: 1.40, 1.35
Market Commentary provided by Fast Brokers.
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