The EUR/USD jumped over our 3rd tier uptrend and 2nd tier downtrend lines despite very disappointing German PPI and EU Current Account numbers yesterday. Germany's collapse in PPI adds onto last week's decline in EU CPI. Hence, EU prices are freefalling while producer prices decline at a faster rate than consumer prices. Therefore, the ECB may be inclined to inject more liquidity since they have held a relatively neutral monetary policy stance while the BOE takes measures to re-inflate the Pound. In regards to the surprise decline in the EU's Current Account, this implies an outflow and consequently increase in supply of Euros since the EU's imports outnumber its exports. Regardless of yesterday's negative data points, investors snapped up the Euro amid a flight from the Dollar.
We notice a sizeable pullback in the USD/JPY taking place while the GBP/USD and gold drag with the EUR/USD. Keep in mind these movements are occurring with the S&P futures hovering around par in the wake of an increase in weekly U.S. Unemployment Claims. Hence, the EUR/USD is basking in Dollar negativity stemming from words of caution from it seems investors are making a slight return to safety in the Dollar with global economic uncertainty creeping in. However, heavyweights Warren Buffett and El-Erian continue their warnings that the U.S. Dollar could be stuck between a rock and a hard place if the Federal Reserve doesn't tighten liquidity at the appropriate time. As a result, it's possible the EUR/USD could receive some psychological support as investors contemplate an unknown future.
Technically speaking, activity favored the buy-side yesterday on the 1-hour. However, the EUR/USD failed to eclipse August 13-14 highs, putting near-term momentum in favor of the downside considering the size of the 8/13-8/17 pullback. The EUR/USD certainly isn't clear of its downtrend considering the currency pair's back in the thick of its 7/20-7/28 trading zone. The lid of this trading range should prove to be worthy near-term resistance along with our 3rd tier downtrend line. Investors will likely refrain from breaking these technical obstacles with a wave of EU PMI data coming on Friday. As for the downside, the EUR/USD has several strong trading range supports and all three of our uptrend lines waiting well below present price. It will be interesting to see how investors treat the Dollar should another pullback in U.S. equities ensue.
Present Price: 1.4214
Resistances: 1.4236, 1.4248, 1.4259, 1.4268, 1.4278
Supports: 1.4200, 1.4188, 1.4180, 1.4163, 1.4154