The EUR/USD is recovering from earlier losses, bouncing from our 2nd tier uptrend line as the S&P futures float well above their psychological 1000 mark. The Euro has exerted incredible relative strength lately, exhibited by the breakout in the EUR/GBP. Euro bulls were inspired by Friday's EU PMI data coupled with yesterday's better than expected Industrial Production release. Industrial Production registered its strongest level of growth since August 2007 as global stimulus packages and auto purchase programs ignite EU factories. However, despite the EUR/USD's resilience, the currency pair still faces our 2nd-4th tier downtrend lines. We believe out 4th tier downtrend line should be a key player since it runs through August highs. Hence, if the EUR/USD can take our 4th tier downtrend line, the currency pair will likely continue its upward momentum by retesting its previous 2009 highs.
Although we are receiving some important housing and consumer confidence data from the U.S. this morning, investors may wait until tomorrow's German Ifo Business Climate release before dislodging the EUR/USD from its recent consolidative pattern. In addition to tomorrow's Germany Ifo number, the U.S. will release Durable Goods Orders and New Home Sales. The Durable Goods Orders data could have a large impact on the EUR/USD since it implies consumption and demand for the EU's durable goods. Since manufacturing plays such a large role in both the German and French economies, better than expected durable goods data could send the EUR/USD past our 4th tier downtrend line, and vice-versa.
Meanwhile, economists are cautioning of asset bubbles caused by the global injections of liquidity, keeping the Dollar at bay and U.S. equity gains capped despite better than expected global economic data. However, although the liquidity measures surely pose a longer-term threat, we believe the immediate and near-term economic data releases should continue their theme of recovery and slight expansion. On the other hand, liquidity injections could come back to haunt the FX markets at the end of the 3rd quarter since investors will expect a growth in corporate earnings and shouldn't be too impressed by gains from cost-cutting.
In all, investors should keep a close eye on the currency pair's interaction with our downtrend lines. Near-term momentum remains to the upside despite investor uncertainty since economic data points have been outperforming expectations. However, if this week's economic data comes in shy of analyst expectations the EUR/USD may opt to test the patience of our 1st tier uptrend line.
Present Price: 1.4325
Resistances: 1.4327, 1.4347, 1.4360, 1.4375, 1.4405
Supports: 1.4315, 1.4304, 1.4294, 1.4272, 1.4254
Psychological: 1.40, 1.45