EUR/USD Technicals – Well supported but long-term bears remain

EUR/USD has recovered somewhat since the resolution of Cyprus bailout fiasco. Price is still remain depressed, but stability has since been found with trading activity capped mostly between 1.275 – 1.29, a tight 150 pips within the past 5 trading days. In fact, price is trading marginally higher with higher highs and higher lows since 28th Mar. After gapping slightly lower on Monday morning, price recovered despite weaker than expected Chinese PMI and Japanese Tankan Survey. Few hours later during US trading hours, the disappointing ISM Manufacturing figures failed to lower this risk currency pair, but rather pushed it even higher due to weakness in USD instead.

Hourly Chart

Hourly Chart shows price pushing above the overarching Kumo and above 28/29th Mar swing high on the back of the ISM disappointment. Prices have cleared 1.2850 convincingly since and we’re currently trading within the consolidation zone found on 26-27th Mar. Price did pullback slightly after post ISM highs but the underlying short-term bullishness is evident via the heavy bounce just around 1.285 during early Asian hours even when news channels are quiet with no heavy hitting news scheduled early morning. Stochastic readings echoes the same view, with curve looking to peak – suggesting a move below 1.285 only to have readings shooting back higher once more.

Daily Chart

Daily chart shows price still downtrend still firmly in place. Fundamentally, this is not surprising as the European crisis is still far from resolved. Cyprus is just one of the latest countries getting more attention recently. There are still many unresolved issues surrounding Spain, Greece and Italy. Recent PMI data show weakness in both Germany and France, while last week’s unemployment data from Germany exposed weakness in German labor force. Euro-Zone remains economically vulnerable and nothing suggest that a sustainable bullish push for EUR/USD can be reasonably expected – at least by Euro strength alone that is.

From a technical basis, EUR/USD bulls will need to clear numerous resistances. 1.29 and 1.30 round number comes to mind quickly, while the multi-month downward trendline will add pressure downwards. Stochastic reading on the Daily Chart is more encouraging though, with readings pointing higher, though it is important to note that previous attempts to head higher barely managed to hit 50.0 while price didn’t break new highs in the process.

Open Position Ratios

Open position ratios show us a huge spike in long positions last week. As this indicator tend to be contraion, the bias is for EUR/USD would be on the downside. Nonetheless, long ratios have fallen marginally, which explains our current short-term bullishness, while at the same time maintaining/enhancing the long-term bearish bias as explained above.

Thursday’s ECB rate decision may turn out to be a moot event as it is highly unlikely that ECB will cut rates. Also, as Draghi’s OMT program hasn’t been utilized yet, it is also similarly unlikely that a newer plan may be in place. However, watch out for Draghi’s speech on the same day as traders and long-term investors alike will want to know what are his thoughts on the Cyprus banks levies. Expect many questions to be asked along that thread. It is likely that Draghi will want to instill confidence in the Euro financial system, but if he fails to convince the markets, this may be the impetus for bearish acceleration and extension of bear trend found on the Daily Chart.

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