After having 4 consecutive quarters of growth, Germany posted the 1st Q/Q loss at -0.6%, slightly more than the -0.5% decline that analyst were expecting. French GDP also shrank more than expected at -0.3% vs -0.2% expected, with previous quarter’s reading revised lower to -0.1%. EUR weakened substantially as bullish traders close out positions as weakness in the 2 largest Euro-Zone economies became softer. EUR/JPY fell from a high of close to 126.0 to below 125.5, looking to test 125.0 interim floor.
However this shouldn’t be as surprising to traders, as Germany’s weakness has been common knowledge with weaker employment figures and manufacturing data. CPI has also missed expectations, and hence a shrinkage in GDP shouldn’t come as a huge disappointment. Indeed there are signs that Germany has started to rebound, with business and consumer sentiments rising higher than forecast and unemployment falling unexpectedly in Jan.
Hourly Chart shows Stochastic readings forming a new top around 50.0 levels. Historically, we have seen bearish follow-through when Stoch peaks formed around the level – see 8th Feb, and 13th Feb. Past trends does not necessarily equate to future occurrences, but at the very least we have some indication that Stoch bear signals here have some reliability as taking crosses signals not found near Overbought/Oversold regions is unorthodox at best. Support could still be found between 124.5 to 125.0, which agrees with what Stochastic is telling us as that would most likely bring readings to Oversold regions.
From the weekly chart, bullish momentum remains the “Soup du jour” despite looking way overextended. There is a lack of evidence of bullish momentum waning, with the 1st long weekly bearish candle unable to formulate any significant bearish reversal pattern as current week continue to look strong. 123.0 previous swing high may provide some support against temporary setbacks, with a break below 123.0 potentially setting the tone for a great bearish reversal. With such strong bullish momentum, caution would be key to prevent any bear traps. An obvious bearish reversal pattern/confirmation should be sought before being sold a falsehood especially with BOJ still looking to push USD/JPY higher.
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