Bearish momentum continued strongly yesterday, with prices breaking the 1.330 support during pre-European open and reaching a low of 1.322 during early US trading session. Once again, we’re looking at technicals trumping fundamentals of the day. The largest sell-off pressure occurred during the break of 1.330 round figure, despite it being a time when Asian traders wind down their trading activities while European traders have yet to get into full gear. Furthermore, market reacted relatively mutely to the surprise increase in the Germans Unemployed numbers which was released 2 hours later, with the hourly candle actually forming a Doji instead of yet another long bearish marubozu.
Instead, price stayed mostly above the 1.325-1.326 support level, until pre US market open which saw the 1.325 level broken thanks to a weaker German CPI print. The bearish influence from the CPI miss should not have been stronger than the Unemployment miss in theory, and the stronger bearish reaction that is invoked here suggest that the breaking of 1.325 is the key reason why EUR/USD reacted so bearishly.
Looking from a pure technical perspective, the onset of yesterday’s sell off is actually during Asian session, where the 1.334 resistance and confluence with the rising trendline (Channel Bottom of Daily Chart) is confirmed broken. Currently price is staying around the 1.324 consolidation zone, with support to be found 5 pips lower and resistance of 1.325. Stochastic readings suggest that we are facing a bullish cycle currently, but as long as 1.325 holds, short-term pressure will remain on the downside since the most recent stoch peak happened just slightly above where current stoch levels are. Hence we could see Stoch levels turning lower again, which will give us a bearish cycle signal if price remains below 1.325 and preferably below 1.3235.
Daily Chart suggest an Adam-Eve Double Top pattern following the break of the rising Channel. 1.32 stands in the way of further bearish movement for now, while Stochastic is facing the same “support” of 50.0 where previous Stoch trough was seen. A breach of 50.0 for Stochastic coupled with a break of 1.32 will open up for a broad long-term move towards 1.28 with 1.30 being the 1st long-term bearish target.
Fundamentally there can be expected weakness ahead with German election coming up. US tapering efforts will also bring out the strength in USD in the long run, aligning with what we are seeing from a long-term technical point of view. However, the journey south may not be that smooth as news events continue to have upside risks. Should Merkel come out unscathed in the elections, and Fed does not implement any taper cut in September, we could still yet see a rebound in EUR/USD. That being said, with Fed tapering more or less a forgone conclusion in either 2013 and/or 2014, pressure will still continue to the downside since Europe economy does not appear to be recovering in leaps and bounds. The best we’ve seen so far is just Germany who is dragging the rest of the Eurozone along.
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