EUR/USD Technicals – Holding just below the 38.2% Fib

Despite closing below the 38.2% Fib last Friday, we have not seen bears fully taking flight yesterday, with EUR/USD pushing to a low of 1.306 during early US hours. This is highly interesting considering that USD has been on an inverse correlation with US Stocks for the past 2-3 weeks, yet US stocks were bearish yesterday, which should imply a stronger USD that can pull EUR/USD lower. That didn’t happen, with EUR trumping USD which allowed price to head back towards the 38.2% Fib and 1.315 confluence. With no European fundamental news releases yesterday, it is unlikely that the rally was due to a spur in EUR strength, but instead there is a higher possibility that USD weakness crept in due to a technical pullback. If this assertion is true, the likelihood of the confluence resistance band holding becomes higher. That being said, it is disconcerting to see that the correlation between US Stocks and USD looks to be shifting once again, it is imperative that the correlation confusion be cleared up within the next few days in order for us to formulate a better conviction with regards to the resistance band holding.

Weekly Chart

From a technical perspective, a return to the Head and Shoulders pattern can be formed if price manages to trade below the 1.30 level which will open for the possibility for a test of the rising trendline as neckline and the likelihood of a neckline break. Stochastic readings shows a Stoch/Signal cross, but it is still currently hanging in the air with Signal line still pushing higher. It is possible that a push below 1.30 may coincide with the Signal line pointing lower, adding weight to the Head and Shoulders top scenario described earlier.

Hourly Chart

Short-term bearish pressure is seen from the Hourly Chart. Price is trading within a descending Channel and is currently straddling the Channel Top to head lower. Stochastic readings suggest that price is Overbought, and a bear cycle is commencing with Stoch line already below 80.0 while Signal line is attempting to peek below. If Stochastic signal is reliable, a move towards Channel bottom would be possible, making short work of the 1.31 support that the Head and Shoulder Patterns on the weekly chart need.

Fundamentally, the economic docket for European Zone is light this week, with Germany Employment and CPI data coming in on Thurs and Friday respectively. The spotlight for later today will be the US Consumer Confidence. This data may not be extremely useful considering that the data is compiled before the big bomb which Ben Bernanke dropped last week. As such, it does not reflect the market sentiment that we truly need now. Nonetheless, it may be good to use this as a proxy to gauge how bullish/bearish the market is with regards to US Stocks and USD. Continue to keep a close watch on the correlation between the Greenback and US stocks after the event to see if the recent inverse relationship still holds.

More Links:
GBP/USD – Unsteady as Pound Tests 1.54 Line
USD/CAD – Loonie Swoon Continues After Weak Canadian Numbers
USD/JPY – Limited Losses as Yen Fights Back

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