1.30 held despite the late scare last Friday. The selling started a few hours after US opening hours after 1.31 resistance held, spurring bears to sell heavily which was aided by the surprisingly low Chicago Purchasing Manager index, which came in at 51.6 vs an expected 55.0 and 58.7 previous. US stocks dipped, while USD strengthened, pushing EUR/USD just below 1.31 on 2 occasions before pulling back up again to end June on 1.3010. Prices started off precariously today, with price trading within a tight 10 pip range between 1.3005 – 1.3015 but looking marginally lower. However, with AUD/USD pushing higher after Chinese PMI data, the spill over of USD weakness affected EUR/USD as well, sending price marginally higher.
From a technical perspective, Short-term pressure remains on the downside, especially since the holding of 1.31. Nonetheless, the break of Channel Top coupled with the holding of 1.30 allows bull withstand current bearish pressure for now. Stochastic readings are looking sharply higher on the last 1-2 hours of “rally”, suggesting that a bullish corrective cycle may be in play but breaking 1.305 may be considered a long shot considering that Stochastic readings may be at or close to Overbought territory should price reaches the level, based on the momentum of Stoch line currently.
Last week’s break of 38.2% Fib but holding of 1.30 does nobody any favors, as it neither invalidates the Head and Shoulders pattern nor validates it. Perhaps this is the reason why EUR/USD is being rather lack-luster right now, as market is currently unsure of where to go from here. If we were to take into consideration of Short-term bias, price action would favor the materialization of the H&S pattern which would imply a break of 1.30 and the movement towards the rising neckline at a minimum. Stochastic readings suggest that a bearish cycle is in play currently, but it is hardly a strong bearish cycle, considering that price wasn’t Overbought to begin with. Looking at historical stoch peaks, there is a hint of divergence with the “Right Shoulder” price (if formed) higher than the left shoulder (Sep – Nov 2012) but with Stoch levels distinctively lower than before. This divergence would suggest that added weight should be given to current bearish cycle but all would be considered “normal” if we compare price and stoch peaks to the Feb’s “Head”.
Should this week end with a long bearish candle that ideally breaks the neckline, we would have a 3 Black Crows bearish reversal signal on top of the Head and Shoulders signal, and that may result in quick acceleration towards lower grounds next week. Fundamentally, it is important to note that EUR/USD is actually trading lower despite a stronger than expected recent showing of German economy, with Retail Sales and Unemployment Change numbers proving to be higher than expected. This suggest that current bearish sentiment is certainly something to behold with, and should any up and coming Euro-Zone news start to disappoint, the resulting sell-off could be spectacular. As this is the first week of July, there will be more than enough landmines for EUR/USD to potentially blow up on, keep a close watch as price may start to get volatile as early as today’s European hours with Euro-Zone CPI and Jun final PMI data lying in wait.