Poor Eurozone data was a burden too heavy to carry for the Euro,
which fell to new 5-week low against the US Dollar. The latter has
recently enjoyed sizeable bids on expectations that the wisdom of
QE in the US is losing its momentum, and that sooner rather than
later, Bernanke and Co. may start to slowly withdraw the stimulus
From the looks at the EUR/USD chart on Wednesday, and in hindsight,
the picture was quite depressing, with a daily bearish engulfing
bar printed suggesting that further gains were viable.
Materializing Thursday's losses was a '3-hour affair' in the early
hours of European trading, after Eurozone PMIs read-outs came below
consensus, raising calls for a contraction in the Eurozone Q1 GDP.
According to economists at NAB, "the data IS suggesting a
contraction of 0.3%, after the 0.6% decline in Q4."
During the 'up the stairs' phase in the pair, mostly comprised
between December and January, the key drivers feeding buyers
appetite were upbeat European fundamentals coupled with the ECB's
hold stance, further strengthened, as BKAM co-founder Kathy Lien
points, "by the consolidation of their balance sheet through LTRO
In the second phase, 'Euro back to reality', Kathy notes how
"economic data has taken a turn for the worse" and, as she says,
"the Fed is thinking about maybe even shrinking its balance sheet
by the end of the year", suggestive of some potential trouble
ahead. She predicts that if today's German IFO comes weak, EUR/USD
may see more downside.
Calls for the next few session seem to suggest that the EUR/USD is
poised to trade heavy, with the upside quite limited by an
increasing committed seller's side.
Fan Yang, chief technical analyst at FXTimes, notes, that unless
above the 1.33 pivot point, "the bearish trend remains strong,
potentially targeting the 38.2% retracement of the rally from July
to Feb (1.2041-1.3710) at 1.3072, which could be the rest of this
week's short-term target."
Our FXstreet.com technical specialist, Gonçalo Moreira, against the
backdrop of increasing calls for a higher EUR/USD pre-FOMC, wrote
that the recent rise in the Euro had been "a short-term trader's
order-driven rally", adding that one should "doubt long-term
players are adding to euro long positions", recommending to "think
contrarian to headlines." So far, price activity seems to have
justified Mr. Moreira's view, who showed his skepticism about the
upside potential in the Euro.
Highlighting his successful recommendation, is of little value in
hindsight, yet the bottom line here is that, while current views
are now pointing for a downgrade in the Euro value in the near
future, getting stuck in that idea may damage one's account.
So, on the other side of the equation, while odds for a significant
rise in the EUR/USD have dissipated, upward adjustments intra-day
are a second scenario important to consider. According to Valeria
Bedmarik, chief analyst at FXstreet.com, "in the 4 hours chart
technical readings start to show signs of exhaustion to the
downside, still in oversold territory." If bulls manage to
consolidate above the prior upswing at 1.3230, that can heightened
the risk for a potential retest of 1.3270 breakout level.