EUR/USD Technicals – 1.35 Broken But L/T Bearish Movement Unlikely

4 Hourly Chart

The Euro suffered the worst weekly performance since week of 20th July 2012, trading below 1.35 last Friday after tumbling more than 300 pips from last Monday’s high. Bulls found some respite on Monday morning led by strong risk appetite during Asian hours following better than expected Chinese Non-Manufacturing PMI. Nonetheless, the failure to break 1.35 despite this bullish move has resulted in strong bearish response, with prices currently trading below the last vestige of support around 1.347.

Looking across various USD pairs, this behavior in EUR/USD is unique, and suggest that the move is predominantly based on bearishness of EUR alone, surprising because EUR/USD tended not to move much during Asian hours especially with no fundamental news from the Euro-zone right now that could have illicit such a bearish response. With Stochastic readings heavily oversold, it becomes less likely that this breakout will be able to last the mile.

Daily Chart

That being said, the “mile” in this case may still be 60 pips away – rather significant for 4 hourly chart movement. Stochastic on the Daily suggest that there is still space for yet more bearish movement, with readings breaking the soft “support” around 40.0 level – suggesting that a new bout of bearish momentum is on its way. This opens up 1.34 as the bearish target, with prices likely to find strong support from the previous swing highs of June and August. However, it is likely that Stoch readings will reach Oversold when that happens. Furthermore, with no strong bearish fundamental reasons to sustain this sell-off, the likelihood of 1.34 holding becomes that much higher.

ECB Rate Decision on Thursday will but the key event for EUR/USD this week. Currently market does not expect ECB to cut rates nor introduce any new easing measures. Hence the likelihood of a immediate bullish reaction on EUR/USD following the announcement is high. However, the future direction of EUR/USD remains unclear with a section of speculators believing that ECB will ease again in December. Therefore traders may wish to look at price action after the dust have settled to see if current bout of bearishness remain. Should EUR/USD ended up trading lower (and especially below 1.34) despite a non-dovish rate decision, we can ascertain that market sentiment is firmly bearish which may take us closer to 1.30 by the time the next ECB rate decision comes around.

More Links:
AUD/USD – Higher On Stronger Retail Sales, Weekend Chinese Data
Week in FX Europe – Expensive EUR ‘Puts,’ Dovish ECB Gives Us A Lower EUR
Week in FX Americas – Fed Statement and Weak European Data Boost USD

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