The decline in EUR/USD yesterday was more gradual as compared to the immediate impact after Bernanke’s QE Taper talk on Wednesday. Price did manage to trade below 1.32 round figure support but was ultimately rebuffed and pushed higher. This is due to a combination of bullish technical rebound and better than expected Euro-Zone Purchasing Manager Index across all 3 Composite, Manufacturing and Services sectors. However all 3 numbers were under par value 50, which means that economic activities are actually shrinking, albeit at a slower pace than before, which is still “good news” compared to the overall bearish backdrop. US Jobless numbers also grew by 18K, higher than expected which pushed USD slightly weaker as over enthusiastic traders may be holding onto the numbers and hope that this would imply that the employment market may not be good enough for Ben Bernanke to cut down QE3 purchases in 2H 2013. That may be wishful thinking, considering that weekly Jobless Claims is highly volatile and tend to swing wildly all the time, providing very little insight on the outlook of US employment market. Traders would be better off using ADP and NFP employment numbers as they tend to be more reliable (even though they have their own sampling/reliability issues).
What this means is that though EUR/USD is trading higher now, it is unlikely to see USD weakening being sustained for an extended period of time. Outlook for EUR/USD remains down despite 1.32 holding, and a retest of 1.32 may happen especially if the higher resistance of 1.3265 holds. There are also fundamental issues crawling out of the woodwork – IMF may be cutting funds to Greece as early as July as other EU countries are hesitant to continue rolling over their current Greek debt. There are other longer-term risk events such as Germany general election in September and also Spain and Italy’s solvency issues. All these forms a bearish outlook for EUR/USD, and there isn’t any major bullish factors in the radar right now.
4 Hourly Chart
From a technical perspective, a break of 1.32 will open up 1.31 as the next level of support. Stochastic readings appears to be flattening despite just popping out of the Oversold region. If current bullish signal for Stochastic fail, the likelihood of 1.32 breaking will be higher.
Weekly Chart outlook is slightly neutral, as the fight between decline from 2011 May and rally from 2012 August is still struggling to find a clear winner. Price should ideally trade above 1.35 and preferably above 2013 Highs, or push below 1.30 and preferably beneath the rising trendline for stronger indication of future direction. Stochastic readings kind of favor downside right now with readings looking likely to flatten, however Signal line is still lagging far behind, suggesting that the current bull cycle may not be over yet.
From a fundamental perspective, even though outlook is bearish right now, there may be small victories here and there that could drive price up in the short-term. One such event could be the EU Banking Resolution that is being discussed right now. Both France Finance Minister Moscovici and EU Commissioner Rehn said that a deal could be agreed as early as today, which may help drive up EUR/USD for a while. However all these bullish lifelines may turn into bearish land mines should any of the outcome turned bearish. This will be the risk moving forward, where expected bullishness may result in limited upside, but heavy downsides if they disappoint.
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