Forex Trading: Maintaining A Bullish Outlook On EUR/USD

The EUR/USD’s rally topped out yesterday (Tuesday) as we expected, with the S&P futures hesitating at 900 while investors await Thursday’s flood of stress test news and economic data.  Yesterday’s decline came on minimal volume, showing there is presently insufficient conviction behind the pullback to send the currency pair tumbling.  The EUR/USD is stabilizing above Monday’s lows, and could bounce back a bit and trade sideways between now and the ECB’s meeting on Thursday.  We maintain our bullish outlook on the EUR/USD since no key fundamentals were broken and the momentum remains to the upside with the currency pair trading comfortably above our uptrend lines.

The two key barriers to a large ascent in the EUR/USD are the psychological 1.35 level and our 3^rd tier downtrend line.  If the currency pair can brave above our 3^rd tier downtrend line in particular, there will be little downtrend pressure left to hold back large gains.  The EU will release Retail Sales data today, which should receive limited reaction in the FX markets.  However, America’s ADP Non-Farm Employment change number could be a market move if it comes in far above/below analyst expectations.  Therefore, we expect the EUR/USD to move in lock-step with the S&P futures over the next 24 hours, exercising its positive correlation.

Thursday’s ECB meeting will be critical since the ECB governors have offered various opinions as to the direction of the central bank’s monetary policy.  The ECB has maintained its benchmark rate at a respectable level while avoiding liquidity measures such as quantitative easing.  The uncertainty among investors could keep any uptrend in check as investors eagerly await results from the meeting.  The ECB’s announcement will come on the same day as America’s stress test results, meaning we expect to see a large spike in volatility on Thursday.

Fundamentally, we find resistances of 1.3329, 1.3359, 1.3389, 1.3420, and 1.3442.  To the downside, we see supports of 1.3283, 1.3241, 1.3211, 1.3179, and 1.3143.  The 1.30 area serves as a psychological cushion with 1.35 acting as a psychological barrier.  The EUR/USD is currently exchanging at 1.3280.