Technical Sentiment: Bearish
- German Producer Price Index decreases by 0.1%
- Euro remains pressured as ECB readies for action;
- EUR/USD fails to correct upwards, eyes 200-Day Moving Average.
Traders were uneasy to push EUR/USD over the 1.3730 handle in recent sessions as Euro pressure mounts in direct correlation with the likelihood that ECB will act next month. The pair is expected to slowly grind lower ahead of US FOMC Meeting Minutes and Thursday’s Flash Manufacturing PMI releases. The Flash PMIs are expected to post small decreases, but if numbers disappoint too much we’ll be looking at a breach below the 200-Day Moving Average this week.
On the 15th last week, EUR/USD formed a bullish Pin bar which led traders to believe a correction was about to come after the drop from the 1.3992 area. The bullish price action pattern offered no follow through as EUR/USD flirted with the resistance at 1.3730 (just below the 100-Day Moving Average) yet never broke above it. If price crosses above this level, rallies won’t be capped until 1.3800/20.
Daily Stochastic remains in oversold territory but with bearish rejections off the resistance EUR/USD may continue the dip towards the next support, which in this case is represented by the 200-Day Moving Average at 1.3626. This level also coincides with a price pivot zone dating back to late 2013.
A breach of the 200-Day Moving Average will open the way for 1.3475 to be tested – the main support from February (level confirmed on multiple occasions between September and October 2013).
On the other hand, if EUR/USD does provide another bullish signal and corrects for a wave or two, rallies will aim to test the 100-Day Moving Average (1.3738) and the 50-Day Moving Average (1.3809), since these lines have been aimed at and respected by the market in recent months.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets