For those of you tracking at home, we’ve gone almost 48 hours into a new trading week without an in-depth look at EURUSD, so of course an update is warranted. So far this week, the world’s most widely-traded currency pair has rallied sharply, undoing all of the losses from Friday’s stellar NFP report to trade back above 1.1300 earlier this morning. The majority of the move took place yesterday amidst (misplaced) speculation about major progress in Greek debt negotiations and (since-denied) rumors that US President Obama was uncomfortable with the high value of the US dollar. While there could still be some bullish-euro developments on these fronts, it currently looks like Monday’s optimism may have been misplaced.
From a technical perspective, the recent rally has driven EURUSD into a potential “sweet spot” for bears. The bearish trend line off last year’s early July high has served as strong resistance on six separate occasions in the past year, including last Thursday’s clear Bearish Pin Candle*, or inverted hammer. This barrier comes in at 1.1375, just above today’s high. At the same time, the secondary indicators are relatively neutral, with the MACD ticking higher modestly above the “0” level while the RSI holds steady in the 50-60 range.
Given the seemingly unwarranted rally on yesterday’s “bullish” fundamental catalysts (thus far) and strong technical barrier in the upper-1.13s, traders may look to fade the near-term bounce. If that situation develops, EURUSD may drop back toward last week’s low at the key previous support/resistance line around 1.1050; conveniently, this is also where the widely-watched 50-day moving average comes in. On the other hand, a legitimate breakthrough in Greece’s negotiations could remove some of the near-term geopolitical uncertainty and take EURUSD back toward the mid-May peak near 1.1500
*A Bearish Pin (Pinnochio) candle, or inverted hammer, is formed when prices rally within the candle before sellers step in and push prices back down to close near the open. It suggests the potential for a bearish continuation if the low of the candle is broken.