The EUR/USD skidded below its highly psychological 1.50 level yesterday in reaction to the selloff in U.S. equities. We didn't receive much pertinent econ data or news from the EU on Monday, telling us weakness in the Euro was fueled by overbought conditions and the pullback in the S&P futures. The EU released its M3 Money Supply data today, and the figure came in 3 basis points below expectations at 1.8%. The rapid downturn in M3 since August 2008 highs is a cause for concern monetary policy wise since its leaves the ECB with less incentive to raise rates. In addition to today's negative M3 release, America's CB Consumer Confidence number came in well below analyst expectations. Today's CB data further confirms that U.S. consumption is still in a funk since the previous UoM release also disappointed. Investors are turning towards the Dollar in reaction to the negative fundamental developments as well as analyst downgrades of several financial companies. We also see weakness in the Cable and Aussie as well as strength in the USD/JPY, reflecting broad-based strength of the Dollar. The Euro is getting hit a bit harder than the Pound since the ECB has been comparatively Dovish in its recent public addresses. However, present strength in the Dollar should provide a bit of comfort to ECB officials worried about the strong Euro's potential impact on a recovering EU manufacturing base.
Meanwhile, investors should keep a sharp eye on the S&P futures since they have dipped below our important 1st tier uptrend line. Further separation beneath our 1st tier could ultimately imply a retracement towards October lows. Therefore, investors should take note of any immediate-term technical developments in the S&P futures since the EUR/USD is positively correlated. The data flow will only get heavier tomorrow with German Prelim CPI along with Durable Goods Orders and New Home Sales from the U.S. The U.S. DGO data will be closely watched by Euro traders since the EU economy relies heavily upon manufacturing driven by export demand. Therefore, it is reasonable to expect that volatility will pick up over the next 24-48 hours.
Technically speaking, the sharp movement below the psychological 1.50 level is a discouraging sign for bulls. However, there remain several uptrend lines we can form, meaning the EUR/USD has a few technical cushions to rely upon before investors can safely cry bear. As for the topside, the EUR/USD now has multiple uptrend lines bearing down on price and the psychological 1.50 level becomes a technical barrier once again. Overall, although the uptrend remains intact, investors should tread carefully since U.S. equities are facing headwinds.
Present Price: 1.4814
Resistances: 1.4819, 1.4844, 1.4863, 1.4890, 1.4925
Supports: 1.4783, 1.4764, 1.4727, 1.4700, 1.4671, 1.4638
Psychological: 1.50, 1.45