EUR/USD Technicals – Short Term uptrend in danger

USD strengthened last Friday on the back of slightly weaker stocks. S&P 500 dropped by 0.59% while Dow 30 fell by 0.70%, keeping above the 15,000 psychological level by finding support around 15,050. The current inverse correlation with stocks continued with USD pushing EUR/USD lower, breaking the hourly Kumo cloud during early US session which has been providing good support previously.

Hourly Chart

Early Asian trade sent price higher to test the Rising Trendline once again. However price was still unable to break the trendline, with the resulting rebound sending price deep into the Kumo. Price is currently being supporting by the Senkou Span B (Kumo bottom) and the confluence with Kijuu-Sen (Red line), with a break potentially opening up 1.33 round figure for testing once again. The current bull trend is hanging by a thread as price has since failed to pull off a higher top on Friday and is currently trading below the rising trendline that represents the current uptrend. Nonetheless, price is still able to forge out higher lows along the way, and hence a break of 1.33 and preferably 1.328 may be needed to invalidate current uptrend and signal for a stronger bearish reversal.

A break of the aforementioned levels is also likely to result in Stochastic Indicator’s signal line pushing below the 80.0 mark in order to signal a firm bearish cycle. Furthermore, this will help to prevent Forward Kumo from executing a bullish “Kumo Twist” which it seems likely to do if price stay within the current Kumo or perhaps rebound back upwards within the next few hours. All these indications points to a weaker bullish trend as before, yet bears still have work to do in order to facilliate a stronger reversal.

Weekly Chart

Weekly chart bias is the opposite of the short-term chart. In here price is actually highly bearish if we consider the fall from Apr 2011 high. However price is bullish if we consider the recovery from Aug 2012 low. After breaking out of the  38.2% Fib 2 weeks ago, price has successfully negated the Head and Shoulders pattern. Last week’s rally is a confirmation that shorter-term bearish prices has been eased, with 1.35 and  50% Fib confluence the bullish target for now. However despite the bullishness, price will still need to break 2013 Highs of 1.37 in order to extend current bull run and dent the longer-term bearishness. Even so, there is a chance that price may fail at the 61.8% Fib and the confluence with Jul 2011 lows. Stochastic readings suggest that price may not be able to break too many resistances considering that readings are currently deep within the Overbought region with Signal line not too far behind, suggesting that a bear trend may evolve sooner rather than later.

Fundamentally, Euro-Zone isn’t doing head and shoulders better than before. German and France – the 2 largest economies and the largest 2 lenders for the bailout funds, are continuing to struggle in 2013. Couple that with Germany’s political instability in a few months time makes the outlook for 2013 a highly bleak one. Furthermore, there is currently very little media/investor interest in the woes of Euro-Zone, with focus primarily shinning on Fed and the will they/won’t they speculation of QE3 tapering. Hence it stands to reason that should investor focus start to bring itself back to the plight of Euro Zone, it is likely that EUR/USD will fall – something that we’ve observed in the past regarding PIIGS and the eventual kicking of can down the road problem “solving” method. History teaches us that complacency seeps in every time after a major crisis has been averted (this year’s name of the game is Cyprus), and eventually reality catches up and market starts to tank again. Hence if the assertions mentioned previously are correct – e.g. base issue not resolved – then EUR/USD outlook will certainly continue to be a bearish one in the future.

More Links:
Week in FX Americas – Fed’s Communication Skills Better Be Sharp
Week in FX Europe – EUR Waits For Helicopter Ben
Week in FX Asia – Bank of Japan Dissapoints Markets with Inaction Yen Rises

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