By Fast Brokers – Last Thursday’s pullback on large volume was a warning sign, as we had feared. The EUR/USD has continued its slide on heavy action, dropping back below the psychological 1.40 level. Volume remained at elevated levels during Friday’s downturn, confirming the conviction of the pullback. Fortunately for bulls, the EUR/USD has popped back above 5/28 lows on declining volume and is balancing on our 3rd tier uptrend line, avoiding another collapse at least for the immediate-term. Despite the present stabilization, the pullback on such large volume is disconcerting, and gives us reason to believe there may be more room to go to the downside. Therefore, although the medium-term uptrend is still intact, it appears as if we’ve entered a new near-term downtrend. If 5/28 lows don’t hold we could see a retracement towards the 1.35-1.355 zone. As for the upside, bulls should look out for a recovery above the psychological 1.40 level and our 2nd tier uptrend line on large volume. If this doesn’t occur, then the currency pair may be inclined to continue its downward path.
We’ve seen a quick, sizable appreciation of the Dollar across the board over the last few sessions, so the Euro is not alone. Even though many analysts highlight Friday’s job report as the engine behind the appreciation, we believe the rise of the Dollar has more to do with the strong language from Bernanke concerning the need to tighten liquidity as soon as possible without squeezing the economic recovery. The probability of the Fed raising rates by year end has risen substantially over the past week, giving investors a reason to favor the Dollar. However, we also view the recent public addresses from both Bernanke and Geithner as a means to change the negative psychology surrounding the sustainability of the Dollar. Though psychology is obviously a strong market force, the fundamentals are still in favor of a medium-term uptrend in the EUR/USD unless the currency pair should continue to collapse through strong supports on heavy volume.
Today’s German Factor Order report came in line with analyst expectations and received a muted reaction. News will be relatively quiet on the economic data front in the EU this week. The U.S. will announce retail sales on Thursday which should be a market mover. However, although there isn’t much data to sift through this week, investors should keep in mind that we have seen volatile sessions and light economic data over the past 8 months.
Fundamentally, we find resistances of 1.3891, 1.3945, 1.4003, 1.4035, and 1.4090. To the downside, we see supports of 1.3815, 1.3766, 1.3734, 1.3663, and 1.3581. The 1.40 area serves as a psychological resistance with 1.35 acting as a psychological cushion. The EUR/USD is currently exchanging at 1.3871.
Market Commentary provided by Fast Brokers.
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