Bearish pressure remains intact for EUR/USD despite Friday’s rally that managed to push above 1.37 momentarily. However, not only was price unable to break the round figure number, prices retreated quickly beneath the soft 1.369 ceiling as well, highlighting the strong bearish pressure that EUR/USD is under. This morning brought short respite for bulls once more, but early bullish venture was stopped by the combined resistance of 1.369 soft resistance and the descending trendline that is in play post FOMC Wednesday (Thursday Asian hours). This open up Friday’s bottom as possible bearish target once again, and we could potentially see bearish acceleration should price push below 1.367 soft support.
Daily Chart is bearish with Friday’s bullish endeavor unable to break back above the rising trendline, piling even more bearish pressure on prices. A silver lining for bulls remain though, as Stochastic on the daily chart is less steep than before and may even bottom out at current level – where previous trough was seen back in mid October. Hence, it may be premature to assume that the test of rising trendline is over, and even if prices do push lower from the rising trendline, we could still find significant support close to 1.36 as Stochastic readings will most likely be within Oversold region when that happens.
Fundamentally, we need to ask ourselves if EUR should be so high right now. Problems in Greece and other peripheral Euro-Zone countries remain, and may rear their ugly heads in Q1 2014 in similar fashion to past few years. On the other hand, USD is expected to strengthen in 2014 with the Fed expected to start the tapering ball rolling after doing the first cut last Wednesday. Hence, we need to see some strong fundamental shift in order for EUR/USD to foster higher highs moving forward, and right now it is hard to imagine that happening within the next few months. ECB may yet pull another rabbit out of the hat to solve Euro-Zone’s issues once and for all, but possible solutions that have been thrown around involved liquidity measures (another round of LTRO) and/or introducing negative rates – both of which result in weaker EUR, not stronger, which makes the likelihood of long-term EUR/USD rally even lower.
That being said, it should be noted that bulls of EUR/USD remains strong, prices managed to stay afloat despite S&P downgrading EU debt to AA+. Hence, traders should not simply short EUR/USD right now and hope for the best. Then again, such bullish sentiment will only work out in the long-run if speculators are rewarded with bullish news eventually coming through, without which the bearish reprisal may end up even greater than the rally and we may have a quick sell-off on our hands in the future. Bottomline? Stay patient bears.
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