EUR/USD Technicals - Stable Above 1.39

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 |  Includes: ERO
by: Dean Popplewell

by Mingze Wu

EUR/USD strayed lower this morning but was mostly stable above 1.39 round figure. By keeping above the key level, the rally of last Friday remained intact and bullish pressure continues to favor a push towards Thursday's high. However, before we get all excited about the bullish prospect of EUR/USD, it is important to understand why prices even rallied to begin with.

Looking at the economic calendar on Friday, we can see that economic numbers from eurozone have exceeded or at the very least met expectations. Germany consumer price index came in as expected, while Employment numbers from the eurozone have improved on a Q/Q basis. Y/Y wise we are still seeing slight decline, but the -0.5% is certainly slower than the -0.8% figure seen the previous quarter. Across the English Channel, UK's economy appears to be slightly better as well, with Construction Output growing 5.4% Y/Y after seasonal adjustments, stronger than expected 5.2% and higher than previous month's 4.9%. All these numbers echoed the broad recovery narrative of the eurozone, pushing EUR/USD higher.

Hourly Chart

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However, astute readers will notice that price action does not really line up with the economic news announcements. EUR/USD was already recovering before European markets opened, and actually traded slightly lower when the eurozone employment numbers were released. Prices climbed up once again during the early U.S. session where U.S. stocks were bearish, a move that is peculiar when we consider that USD should be strengthening during the same period due to safe haven flows. This assertion seemed to be accurate when we see that Gold prices actually climbed higher during the aforementioned period, while USD/JPY traded lower as well, suggesting that traditional risk off flows were alive and well and hence USD should also be strengthening broadly too.

Therefore, the fact that EUR/USD managed to climb higher is a sign that underlying sentiment of EUR/USD is bullish. This is once again affirmed by the holding of 1.39 support when Asian market is less than bullish. Stochastic indicators suggest that prices are within a bearish cycle right now, but we could also see the Stochastic curve rebounding off the 50.0 "support" level, lending strength to 1.39 support holding.

Daily Chart

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The Daily Chart is less optimistic though, as prices may be in the midst of a bearish rejection from Channel Top, which would open up a move back towards Channel Bottom. Stochastic indicators on the Daily Chart also lean towards a bearish cycle but Stoch curve should preferably push below 65.0 to signal stronger bearish conviction. This is important as a bullish breakout may be in play with 1.39 support holding, which opens the possibility of a more thorough test of Channel Top. As such, more confirmation is needed in order to invalidate the breakout and at the same time establish strong/longer-term bearish momentum.