The collision between our 2nd tier trend lines is approaching today, indicating volatility could increase over the next few trading sessions.  Looking off towards the Dollar's correlations, we notice gold made another decisive move south today once reaching an inflection point of its own.  Meanwhile, crude and the S&P futures are flirting with important trend lines.

We believe the Dollar could take its cue from gold and exercise their negative correlation, implying a decline in the EUR/USD.  As we mentioned in our previous analysis, the Dollar is at a T-Junction with the Euro, meaning we should see a trend statement soon.

That being said, the mentality seems to be shifting across the board.  From overbought equities to international tensions to expensive crude, the momentum appears to be shifting to the downside.  Markets were relatively quiet last week while patterns consolidated, reflecting investor indecisiveness.  However, it seems the FX markets could awaken as trend lines reach their respective inflection points.

If the EUR/USD should decide to make a game-changing move to the south as we anticipate, the currency pair could experience a swift pullback towards our 1st tier uptrend line and the 1.35-1.36 zone.  We can't forget the EUR/USD previously broke below the neckline (3rd tier uptrend line) of our head and shoulders patter and the retest seems to have failed.

Large volume sessions have been dominated by the sell-side and volume is on the decline again.  Hence, investors should keep a close eye out for any large action to the downside, particularly any with the currency pair trading near June lows.  As for the upside, investors should look for a pop above 1.40 and our 3rd tier downtrend line on large volume before feeling comfortable.

The Euro continues to exhibit relative weakness with the EUR/GBP breaking below some important uptrend lines.  The weakness in the Euro comes despite a slightly better than expected German Ifo Business Climate number.

The data point remains well beneath 2007 highs, signifying it's still too early to tell whether we're experiencing a head-fake via improvement in economic data, or whether we're witnessing a true technical bottom.  Therefore, despite the positivity inherent in today's release, the EU region remains in a comparatively mixed state regarding its economic condition. 

The headlines will remain relatively quiet on the economic data news front until the EU releases a slew of manufacturing and services PMI data points on Tuesday.  We maintain our negative outlook trend-wise for the near-term due to the aforementioned analysis.  However, we keep in mind that there is a medium-term uptrend in play, and it will take several fundamental movements to the downside to alter the currency pair's ultimate path upward.

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