Euro Depreciating Against US Dollar After Impressive Bull-Run

The Euro is depreciating against the Dollar as the EUR/USD’s volume dips.  The currency pair’s impressive bull-run is cooling off below the highly psychological 1.40 level, and could get squeezed between our 2^nd tier downtrend line and 1^st/2^nd tier uptrend lines.  The relative weakness of the Euro is reflected in the rapid selloff in the EUR/GBP with investors favoring the Pound over the Euro.  Although, since recent economic data from the EU hasn’t given investors much of a reason to balk, we view present losses as a symptom of overbought conditions.  Therefore, we are witnessing a healthy consolidation unless the downturn should pick up speed with sizeable volume.  However, we don’t believe this to be the case.  We view the bull-trend as alive and well with the last concrete downtrend, our 1^st tier, fading into the background.  As for the immediate term, keep a close eye on our 1.3889 support.  If this doesn’t hold we could see a solid near-term decline.  As a result, our 2^nd tier uptrend line should prove to be an important defense.

The EU will be relatively quiet on the economic news front, meaning the EUR/USD should reflect a sharp positive correlation with U.S. equities for the time being.  Hence, should the S&P futures build off of yesterday’s strong showing, the EUR/USD could be incline to follow suit to the upside.  Meanwhile, investors will be looking for a slight increase in the German Unemployment Change release tomorrow as manufacturers and exporters struggle with a stronger Euro and waning global consumption.  We maintain our bullish outlook on the EUR/USD trend-wise with fundamentals working in the bulls’ favor.

Fundamentally, we find resistances of 1.3922, 1.3958, 1.3991, 1.4024, and 1.4060.  To the downside, we see supports of 1.3889, 1.3847, 1.3807, and 1.3751.  The 1.35 area serves as a psychological cushion with 1.40 acting as a psychological barrier.  The EUR/USD is currently exchanging at 1.3911.

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