The EUR/USD is back wrestling with the highly psychological 1.50 level after breaking through the barrier yesterday. We view yesterday's movement as an important technical development since we previously explained how 1.50 represents our final topside barrier before 1.55. Hence, we could be on the brink of another near-term breakout in the currency pair should tomorrow's EU PMI data print well. On a cautionary note, headwinds are gaining strength due to growing psychological forces. The ECB has heightened its rhetoric regarding its concern about a weaker Dollar. Though the ECB is all talk right now, the central bank may become proactive should the Fed neglect to make a concerted effort to tighten its belt, so to speak. Meanwhile, China's economic data came in around analyst expectations today and investors are a bit disappointed that there wasn't a topside surprise as we've become accustomed to. Furthermore, hawkish sentiment is brewing once again in China since investors are becoming increasingly concerned that excess liquidity is creating asset bubbles. The change in tone is worth noting since investors are uncertain how a tightening of liquidity in China would impact the global economic recovery. However, the government appears content with its current monetary policy and a shift likely wouldn't come until 2010. Today's EU Current Account data certainly doesn't allay fears that an appreciating Euro will choke the EU's economic recovery. The sharp reversal in the Current Account shows exports are suffering due to a strong Euro and high unemployment in developed nations. Therefore, tomorrow's PMI and German Ifo Business Climate data could determine whether investors are comfortable sending the Euro even higher despite psychological and now fundamental headwinds. Even though there are topside psychological forces beginning to work against the EUR/USD, investors should also take note that the Beige Book confirmed the Fed has no plans for tightening its own belt any time in the near future. Therefore, it seems the ECB will need to take action should it want to reverse the EUR/USD's medium-term uptrend.
As for the time being, the EUR/USD's near-term and medium-term uptrends are intact and the remainder of the week is all about PMI data and Q3 earnings. Fundamentals would likely trump negative psychological forces should earnings continue to roll in positively while tomorrow's PMI numbers top expectations. However, negative developments in either could send the currency pair reeling towards weekly lows. Meanwhile, investors should keep an eye on the S&P futures since they have failed to break through their psychological 1100 level. Any considerable downward pressure in U.S. equities would likely send investors towards the safe haven of the Dollar. Investors should pay particularly close attention to our 1st tier uptrend line and the psychological 1050 level. Overall, the markets are still trying to make up their minds regarding whether to continue this year's impressive bull run. Technicals continue to support this belief, and until positive technicals deteriorate the EUR/USD's uptrend is in place.
Technically speaking, the EUR/USD's topside barriers are the psychological 1.50 level, intraday highs, and our makeshift 3rd tier downtrend line. As for the downside, the currency pair has several technical cushions waiting nearby, beginning with our multiple uptrend lines along with 10/21 and 10/19 lows.
Present Price: 1.4997
Resistances: 1.5021, 1.5052, 1.5086, 1.5127, 1.5146
Supports: 1.4981, 1.4942, 1.4921, 1.4880, 1.4860, 1.4834