EUR/USD Pulls Back Sharply Towards Bottom-End Support

By Fast Brokers – The EUR/USD is starting off the week on a negative note as investors seemingly price in a troublesome earnings season.  We don’t have any news moving the markets other than the EU’s disappointing Sentix investor confidence number.  The Cable is faring worse than the EUR/USD, and is also moving on little to no news.  Therefore, we conclude investors are giving into the downside as they lose some confidence in regards to the sustainability of the global economic recovery.  Crude and the S&P futures are also logging substantial losses Monday, reflecting a lack of confidence in the 2nd quarter earnings season.  As a result, the tug of war may be swinging in favor of the bears.  However, before investors jump to conclusions, we will have to see how the EUR/USD interacts with our new 2nd tier uptrend line.  If this trend line doesn’t hold, we could witness a contraction towards key June lows and our new 1st tier uptrend line.

Meanwhile, the S&P futures are playing with fire again as they break from their own June lows.  We expect the EUR/USD to experience a tight positive correlation with U.S. equities this week since investors will receive a relatively light load economic data from both the EU and U.S.  The focus will be on the U.S. earnings season which kicks off Wednesday with Alcoa.  The 2nd quarter performance of U.S. corporations and their guidance for the 3rd quarter should be critical for the near-term direction of U.S. equities.  Investors will be paying close attention to the corporate outlook to see whether officers believe the economic recovery has legs.  Hence, the next few trading sessions could end up being an important turning point concerning trend for the U.S. Dollar.

Today’s development in the EUR/USD is certainly disconcerting, and investors should monitor whether volume picks up to the downside.  Bulls appear to be giving in after weeks of battle, and it will be interesting to see where the new bottom forms.  A near-term retest of our 1.3826 support seems likely, and if the bottom-end of our new support structure doesn’t hold, the EUR/USD may enter a more prolonged downturn.  On the other hand, the bulls have an opportunity to salvage the uptrend at our 2nd tier uptrend line, though the near-term momentum clearly lies in favor of the bears.

Present Price: 1.3895

Resistances: 1.3923, 1.3942, 1.3964, 1.3985, 1.4018

Supports: 1.3889, 1.3865, 1.3848, 1.3826, 1.3802

Psychological: 1.40

Market Commentary provided by Fast Brokers.

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