EUR/USD fell lower after failing to retest 1.34 yesterday as expected as the original rally towards 1.34 on Tuesday was never fundamentally supported and went against the grain of all other risk asset. The bearish move can be partially attributed to the continued strengthening of USD while beat every single major currency except for NZD yesterday. Fundamentals wise, traders could point at the weaker than expected German GFK Consumer Confidence Survey as the catalyst for the drop. They could even throw in the weaker than expected German Import Price Index for good measure. However, the largest bearish move yesterday was not during European hours, but during US open, when there wasn’t any news on the wires. US Pending Home Sales was indeed released yesterday, which grew 8.6% Y/Y vs 7.9% expected, but that came in 1 hour after the major sell-off started, and hence cannot be the reason why price pushed sharply lower. Furthermore, EUR/USD actually climbed higher after the news despite the fact that a stronger Home Sales would encourage higher tapering odds and hence a stronger USD.
What happened yesterday hence feels more like technically inspired. Prices rebounded from the 1.34 ceiling, finding some slight acceleration during European hours following the break of 1.336. Price found support around 1.334 and rebounded back towards 1.336 a few hours later but wasn’t able to climb back higher, thus confirming the 1.336 breakout. This resulted in even stronger bearish movement lower which allowed bears to break the rising trendline (Channel Bottom seen from Daily Chart below). However price found yet more support in the form of 22nd August swing low, allowing price to push back towards 1.334 soft support turned resistance, ending the US session there.
Currently we are trading back lower again, as 1.334 refuse to budge. 1st obvious bearish target would be the swing low regions from both 22nd and 28th August. Stochastic readings are currently pointing lower, forming a peak around the 50.0 mark. As readings did not really manage to hit the Oversold region previously, current Stoch bearish leg can still be regarded as the same bearish cycle that started yesterday. This put price in a good position to hit 1.33 round figure once again and perhaps lower if bearish momentum continue to remain strong even if Stoch readings hit Oversold then.
Daily Chart shows price breaking Channel Bottom. This opens up 1.32 support as the next bearish target, but price would need to break softer support 1.33 as confirmation for the Channel Breakout. Stochastic readings also favors downsides with stoch curve crossing Signal line and pointing lower.
Nonetheless, there is a niggling feeling that recent USD strength has been slightly overextended as a large part can be attributed to the Syrian scare. There is a likelihood that market has overplayed a war scenario and we may see a snap pullback in USD should White House announce no military action. This may result in a “fakeout” for EUR/USD and price may easily move back into the Channel once again. However, given that USD long-term bias is still higher due to QE tapering, traders should not simply expect price will be able to fly up to Channel Top at the drop of a hat. 1.34 remains a strong resistance as well, and we may need to see a break there before higher objectives can be contemplated.