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EURUSD to Resume 2008 Bear Trend on Close Below 1.3800

EURUSD to Resume 2008 Bear Trend on Close Below 1.3800

2014-02-28 17:00:00
David Song, Strategist
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Talking Points:

- USDOLLAR Pares Decline as Faster 4Q Inflation Undermines Dovish Fed Policy

- Euro Needs Close Above 1.3800 for Bullish View; ECB Meeting in Focus

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10560.25

10583.77

10546.29

-0.19

105.57%

USDOLLAR Daily

Forex_EURUSD_to_Resume_2008_Bear_Trend_on_Close_Below_1.3800__body_Picture_3.png, EURUSD to Resume 2008 Bear Trend on Close Below 1.3800

Chart - Created Using FXCM Marketscope 2.0

  • Lower High Appears in Place as Bearish RSI Momentum Gathers Pace
  • Interim Resistance: 10,657 (61.8 expansion)- Former Support
  • Interim Support: 10,509 (23.6 retracement) to 10,524 (38.2 retracement)

Release

GMT

Expected

Actual

GDP Annualized (QoQ)(4Q S)

13:30

2.5%

Personal Consumption(4Q S)

13:30

2.9%

GDP Price Index(4Q S)

13:30

1.3%

Core PCE (QoQ) (FEB)

13:30

1.1%

ISM Milwalkee (FEB)

14:00

51

Chicago Purchasing Managers Index (FEB F)

14:45

56.4

Univ. of Michigan Confidence (FEB F)

14:55

81.2

Pending Home Sales (MoM) (JAN)

15:00

1.8%

Pending Home Sales (YoY)

15:00

-11.6%

Fed's Stein, Kocherlakota, Evans and Plosser Speak in New York

15:15

GDP Annualized (QoQ)(4Q S)

13:30

2.5%

Personal Consumption(4Q S)

13:30

2.9%

GDP Price Index(4Q S)

13:30

1.3%

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) bounced back from a fresh weekly low of 10,545 amid the unexpected uptick in 4Q inflation, but the technical outlook continues to favor ‘selling bounces’ in the greenback as it carves a lower high in February.

The bearish momentum in the Relative Strength Index (RSI) continues to suggest that former support around 10,615 will provide near-term resistance, and the dollar could be on course to mark a lower low as the recent slowdown in the U.S. economy drags on interest rate expectations.

With that said, the market reaction to next week’s Non-Farm Payrolls report may set the tone for March trading, and the dollar may continue to underperform against its major counterparts should the fundamental developments coming out of the world’s largest economy heighten the Fed’s scope to retain the zero-interest rate policy (ZIRP) for an extended period of time.

Join DailyFX on Demandto Cover Current U.S. Dollar Trade Setups

Forex_EURUSD_to_Resume_2008_Bear_Trend_on_Close_Below_1.3800__body_ScreenShot161.png, EURUSD to Resume 2008 Bear Trend on Close Below 1.3800

EURUSD Daily

Forex_EURUSD_to_Resume_2008_Bear_Trend_on_Close_Below_1.3800__body_Picture_1.png, EURUSD to Resume 2008 Bear Trend on Close Below 1.3800
  • Failure to Close Above 1.3800 Should Preserve Bearish RSI Momentum
  • Interim Resistance: 1.3800 (100.0 expansion) to 1.3830 (61.8 retracement)
  • Interim Support: 1.3450 (38.2% retracement) to 1.3460 (50.0% expansion)

Two of the four components gained against the dollar, led by a 0.68 percent rally in the Euro, but a failure to close above the 1.3800 handle may continue to highlight a major top in the EURUSD amid the divergence in the RSI.

Despite the stronger-than-expected Euro-Zone Consumer Price report, the European Central Bank (ECB) may sound increasingly dovish in March amid the persistent slack in the real economy, and the single currency may face a sharp reversal next week should President Mario Draghi show a greater willingness to further embark on the easing cycle.

In turn, another failed attempt to close above 1.3800 should highlight a greater risk of seeing a short-term pullback in the EURUSD, and the pair may continue to follow the downward trend dating back to 2008 should the ECB’s 2016 economic projections highlight a threat for disinflation.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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