The EUR/USD experienced a heightened selloff Tuesday despite the German Unemployment Change coming in below analyst expectations and the EU Unemployment Rate satisfying estimates at 9.5%. Instead of holding steady, the EUR/USD plunged below all of our previous uptrend lines on climbing sell-side volume. The EUR/USD was following crude and the S&P futures lower as global equity markets were under selling pressure. The mystifying part of yesterday's selloff in the EUR/USD was the Euro's relative weakness compared to the Pound. The EUR/GBP registered a sharp contraction even though Britain's Manufacturing PMI and Net Lending to Individuals data came in short of analyst expectations. Hence, one would expect further relative weakness in the Pound when the opposite proved to be true. What we can take from yesterday's currency interaction is that investors decide to snap up an oversold Pound and let the Euro ride with U.S. equities.
The EUR/USD is trying to stabilize today despite weak ADP employment data from the U.S. The EU's Revised GDP came in line with analyst expectations today, continuing the theme of solid data from the European region. However, there has clearly been a shift of momentum towards the downside as investors begin to question the strength of the global economy recovery. Yesterday we saw large sell-side action in both the S&P and crude while the 30 Year T-Bond futures wrestle free of their July highs. The one odd correlative occurrence today is the large pop in gold. The precious metal has been positively correlated with the EUR/USD, so gold's topside momentum is interesting. Meanwhile, investors should keep a close eye on the S&P's interaction with its highly psychological level. If the S&P gives up on 100 and heads towards August lows the EUR/USD will likely follow. Considering the huge spike in volume yesterday, we believe the S&P could be in the midst of a sizable leg down. Therefore, it is becoming increasing difficult to be positive on the EUR/USD for the near-term.
We've readjusted our trend lines to account for yesterday's volatility. The key will be for the EUR/USD to hold out 1st tier uptrend line should it be tested. If our 1st tier uptrend line doesn't hold, a retest of August lows and the highly psychological zone is probable. The 1.40 trading zone would likely prove to be a solid cushion should the EUR/USD decide to extend its pullback. As for the topside, bulls will look to keep the EUR/USD 1.4200-1.4250 zone to try and create a new base. The EUR/USD has added topside obstacles including our 1st-3rd downtrend lines. The EUR/USD may opt to stabilize today considering the ECB will announce its monetary policy decision tomorrow. Even though the ECB is not expected to any drastic changes in its monetary policy, now would be an opportune time to administer a monetary shock considering the neutral outlook of analysts and the rising uncertainty among investors. In addition to tomorrow's ECB decision, the U.S. will release more ISM data and its weekly Unemployment Claims data along with a couple key releases from Britain. Therefore, the EUR/USD certainly has enough data tomorrow to create a new bottom should the numbers impress. On the other hand, disappointing data would only add fire to the EUR/USD's downward momentum.
Present Price: 1.4210
Resistances: 1.4225, 1.4236, 1.4251, 1.4271, 1.4282
Supports: 1.4197, 1.4182, 1.4170, 1.4155, 1.4132