The EUR/USD closed the day down 41 pips at $1.3072. The pair is still searching for direction, and given that the upcoming week is much more quiet as far as economic releases are concerned, the trading range nature of the pair could continue. There were a couple of economic reports released during the previous European session worth mentioning. These include Retail Sales, which came in at -2.4% actual vs. -1.9% estimate, and number of Market Services PMI figures.
According to Marc Chandler, Head of Currency Strategy at BBH,
The EUR service PMI came in at 47.0, it was an improvement over the 46.6 flash reading, but remains well below the 50 boom/bust level and is still consistent with continued contraction in Q2. German and French reports improved from the flash readings and Italy surprised on the upside (47.0 from 45.5).
Economic data in the coming European session will mainly be focused on German Factory Orders due out at 10:00 GMT. Given the recent disappointment in German data (PMI/IFO reports both missed estimates), it will be worth keeping an eye on the pair to see how it reacts should the trend of missing estimates continue. It will also be important to keep an eye out for any ECB rhetoric regarding additional easing. It seems to be influencing the pair on an intra-day basis since Draghi mentioned the possibility of negative interest rates on bank deposits last week.
The euro came under selling pressure today after European Central Bank President Mario Draghi made it clear that they are prepared to ease again if economic data worsens. At the end of last week, conflicting comments from European policymakers created a bit of confusion in the markets. Some members of the central bank said investors may have over-interpreted Draghi's comment on keeping an open mind about negative deposit rates and clearly Draghi wanted to make sure the market understood that he stands behind his commitment to increase stimulus if necessary.
Perhaps it's the fact both U.S. and European equities continue to edge higher which helps the pair keep a bid during "risk on" trading sessions. For the longest time, market participants were dependent on the correlation between equities and EUR/USD, which seemed to move in tandem on a daily basis. However, in recent months the correlation had shown signs of breaking down, which could start to develop again should data out of the U.S. continue to improve.
From a technical perspective, the daily chart continues to be range bound and the weekly/month charts are giving conflicting signals. For example, on the weekly chart it appears a large head and shoulders pattern is forming, which would have bearish implications going forward. However, on the monthly chart, the pair formed an impressive bullish engulf candle in April, which is a constructive development. Until either of these patterns is confirmed or negated,
The bottom line is when the longer-term time frame charts are in disagreement, it's not surprising to see many market participants on the sidelines or flocking to other forex pairs or asset classes which have a more defined trend. In the short term, this means looking for a daily close above $1.3240 (upper boundary or range) or below $1.2950 (lower boundary of range) which will help make the picture more clear and offer a better risk/reward scenario.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.