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By Stuart McPhee

Throughout the first half of February, the euro enjoyed a solid move higher moving from support around 1.35 up to test the key level at 1.37. It was able to move through the 1.37 level before consolidating and spending the best part of the last couple of weeks resting on support at that level. Over the last 24 hours, the euro has fallen sharply through the key 1.37 level reaching a two week low in the process. To finish out January, the euro continued its decline and moved to a two month low touching below the support level at 1.35. For the last couple of months, the euro has generally steadied and established a trading range roughly between 1.3550 and the recent resistance level at 1.38, however, to finish out several weeks ago, the euro broke down through the support level at 1.3550. The 1.3550 level has become a key level over recent times. A couple of weeks ago, the euro sprung off it to a two week high at the resistance level at 1.37, where it has spent several days consolidating before dropping sharply back to the key 1.3550 level again. After placing some pressure on the resistance level at 1.38 several weeks ago, the euro has since fallen sharply down to its lowest level in two months.

Through November, the euro enjoyed a solid move higher, which saw it return to a wall of resistance at 1.38 and in doing so, move to a then six week high. In the few days afterwards, the euro challenged the 1.38 resistance level again before being turned away yet again. In mid- November, the euro did well to bounce strongly off support at 1.34 and recover the lost ground from the previous couple of days, which saw it fall from the resistance level around 1.3550. This was after a few weeks, which saw it move steadily higher from a support level at 1.33 back up to a three week high just above 1.3550. Over the last few months, 1.3550 has been a key level.

Towards the end of October, the euro enjoyed a strong surge higher to move through to its highest level in nearly two years just above 1.38 before spending that week content to consolidate around this level. Over the following three weeks, it fell heavily down to a support level at 1.33 before recovering well. It moved quite well throughout the middle of October after breaking higher from its sideways range. For the month leading up to that, the euro traded within a narrow range between 1.3450 and 1.3650 before the range narrowed down to between 1.35 and 1.36. The former level of 1.35 was strongly tested a few weeks ago and has resurfaced as a significant level presently.

German GfK Consumer Confidence continues to rise, as the key indicator moved upwards for the fourth straight month. The indicator hit 8.5 points in January, its highest level since January 2007. The markets had expected another strong showing, with an estimate of 8.3 points. The excellent reading comes on the heels of year high. A strong German CPI release on Thursday could push up the euro.

(Daily chart / 4 hourly chart below)

EUR/USD February 26 at 21:50 GMT 1.3686 H:1.3757 L: 1.3661

EUR/USD Technical

S3S2S1R1R2R3
1.35001.3400---1.3800------

During the early hours of the Asian trading session on Thursday, the euro is slowly edging higher towards the key level at 1.37 after recently falling sharply from above 1.37. Current range: just below 1.37 around 1.3685.

Further levels in both directions:

• Below: 1.3500 and 1.3400.

• Above: 1.3800.

OANDA’s Open Position Ratios

(Shows the ratio of long vs. short positions held for the EUR/USD among all OANDA clients. The left percentage (blue) shows long positions; the right percentage (orange) shows short positions.)

The EUR/USD long position ratio has moved back down towards 30% as the euro has dropped sharply back below the key 1.37 level. The trader sentiment remains in favour of short positions.

Economic Releases

  • 00:30 AU Capital Expenditure (Q4)
  • 09:00 EU M3 Money Supply (Jan)
  • 10:00 EU Business Climate Index (Feb)
  • 10:00 EU EU Business & Consumer Survey (Feb)
  • 13:30 CA Current Account (Q4)
  • 13:30 US Durable goods orders (Jan)
  • 13:30 US Durables ex defence (Jan)
  • 13:30 US Durables ex transport (Jan)
  • 13:30 US Initial Claims (22/02/2014)

*All release times are GMT

Source: EUR/USD - Drops Sharply Below Key Level Of 1.37