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Forex - EUR/USD Vulnerable ahead of 1.3700, Poised for Reversal

Forex - EUR/USD Vulnerable ahead of 1.3700, Poised for Reversal

2014-02-14 14:50:00
Research, Research Team
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Main Points:

EUR/USD rallied after ECB report, poor US data

• ECB lowered inflation targets for 2014 and 2015

• Germany’s CPI data remained in line with expectations

• US jobless claims ticked up last week, retail sales fell surprisingly in January

EUR/USD jumped more than 100 pips on Thursday after the European Central Bank's (ECB) monthly report, Germany’s Consumer Price Index (CPI) for the month of January and poor US data. The EUR/USD pair is expected to resume downside movement from the 1.3685-1.3730 resistance area based on technical analysis.

The European Central Bank (ECB) revealed sharp revision in inflation estimates for the current year as well as 2015. The ECB monthly bulletin reported that data from the Survey of Professional Forecasters (SPFs) lowered the inflation forecast for current year to 1.1%m, from the November estimate of 1.5%. Similarly, projection for inflation during the next year was revised to 1.4% from the previous gauge of 1.6%.

It is pertinent to mention that the ECB is already mulling over some harsh policy measures such as a negative deposit rate or Quantitative Easing (QE) to cope with sustained low inflation across the Eurozone. Germany’s CPI, which is believed to be a main gauge for inflation, rose by 1.3% last month compared with the same month of the previous year, a report by Federal Statistical Office (FSF) revealed. CPI, however, fell by 0.6% as compared to the December reading. Both Month over Month (MoM) and Year over Year (YoY) readings were broadly in line with median projections by different analysts. Moreover, the country’s Harmonized Index of Consumer Prices (HICP) for the month of January also rose by 1.2% compared to the same month last year.

HICP slid down by 0.7% as compared to December reading. Both MoM and YoY readings of HICP were broadly in line with expectations. Generally speaking, price remains unaffected if data matches the market expectations. EUR/USD is being traded near 1.3670 at 11:20 GMT. Immediate resistance can be noted around 1.3683, the 50% fib level and the upper trendline channel, as demonstrated in the following chart. A break and daily close above channel resistance may expose the critical resistance level around 1.3738.

EUR/USD Daily Chart

Forex-EUR-USD_Vulnerable-Poised-Reversal-0013_body_Image38.jpg, Forex - EUR/USD Vulnerable ahead of 1.3700, Poised for Reversal

On the downside, the first support is seen near 1.3580, that is the 50% fib level of the recent move, and then 1.3524, which is the 76.4% fib level. A break below 1.3524 may expose 1.3477 and then channel resistance as shown in the above chart. Bias for the EUR/USD will remain bearish as far as price remains below 1.3738.

The Commodity Chanel Index (CCI), is showing a 62.00 reading on the daily chart, which is well below the overbought zone. This means more upside movement cannot be ruled out. A report by the US labor department showed that the number of people who claimed jobless benefits rose to 339K during the week ending on February 9. Similarly, a separate report by the commerce department reported that retail sales slid down by 0.4% in January, the report also revised last month’s read with a 0.1% drop.

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