The EUR/USD is being denied by our 2nd tier downtrend line after U.S. retail sales and weekly unemployment claims all came in weaker than analysts anticipated. Today's U.S. data is deflating Wednesday's rally in reaction to a more upbeat speech from Bernanke following the Fed's monetary policy meeting. Investors were reassured by Bernanke and ignored weaker than expected industrial production data from the EU. The Dollar's negative correlation with U.S. equities locked back in after deviating the last few sessions. Investors made an assertive return to risk, yet the EUR/USD didn't register comparable volume to the upside as it did to the downside last Friday. However, the Euro is exerting some relative strength today after German and French GDP surprised investors by printing positive growth. The EU's Flash GDP reiterated the improvement by coming in at -0.1% vs. -0.5% expected. Therefore, it appears the EU's manufacturing hubs, Germany and France, are recovering well despite recent depreciation of the Euro against the Dollar. We believe the improvement in the EU's economy may be a result of demand from emerging countries such as China, India, and Brazil. Additionally, economic problems in Eastern Europe don't seem to be having as negative of an impact on the EU region as one might expect.
Today's GDP news from the EU should be enough to buoy the EUR/USD until tomorrow's CPI data. An improvement in EU prices couple with stability in the S&P futures would help the EUR/USD hold its ground. Meanwhile, investors should keep an eye on buy-side volume to see whether recent sell-side volume can be countered. Our 2nd tier downtrend line should continue to serve as a reliable immediate-term barrier until we receive more data on Thursday. While the positive correlation between the EUR/USD and the S&P futures seems to be back in place, today's negative data from the U.S. makes us doubt a serious rally in equities today.
The EUR/USD's previous pullback this month has created a few barriers to the upside which will need some momentum to overcome. These obstacles include our 2nd and 3rd downtrend line along with August 7th highs. As for the downside, the EUR/USD has technical cushions in our 3rd tier uptrend line and intraday lows. Though today's pop in the EUR/USD is certainly encouraging, the currency still has something to prove to the topside before we are comfortable with a return to its uptrend.
Present Price: 1.4270
Supports: 1.4274, 1.4262, 1.4241, 1.4216, 1.4200
Resistances: 1.4290, 1.4303, 1.4325, 1.4345, 1.4368
Psychological: 1.40, 1.45