Friday’s large pullback is following through into Monday while the S&P futures continue to dangle just above their highly psychological 1000 level. Friday’s pullback came on abnormally large volume, giving ample reason for the EUR/USD to continue its slide today. Weakness in the EUR/USD comes despite better than expected French Industrial Production data. However, positive data from the EUR/USD is likely giving the Euro relative strength, as exhibited by the bounce taking place in the EUR/GBP. We recognize similar downturns in both the GBP/USD and gold as well, indicating a broad-based market weakness.

The USD/JPY is also trading lower today, deviating from Friday’s theme of a stronger Dollar. Meanwhile, crude and the S&P futures are holding strong above their psychological levels, $70/bbl and 1000 respectively. The continual strength in the U. S. marketplace despite the overall appreciation of the Dollar is puzzling. Could the Dollar’s latest round of appreciation indicate an approaching pullback in the S&P futures, or are the crisis-prone correlations shifting? We will closely monitor the S&P’s correlation with the Dollar for any sort of confirmation. There is always the possibility that an appreciation in the Dollar was overdue and doesn’t detract from the S&P’s rise.

Meanwhile, we shifted our trend lines to form new 1st tier and 2nd tier uptrend line. The EUR/USD is quite a ways from our 2nd tier uptrend line. However, if the EUR/USD can’t stay above our 1.4155 support a pullback towards the 2nd tier seems probable. Our 1st tier turned 3rd tier uptrend line is reaching an inflection point with our 1st tier downtrend line.

Therefore, there’s the possibility of heightened volatility over the next 24 hours. While we maintain our negative outlook on the EUR/USD for the immediate term, the EUR/USD’s medium-term uptrend still has two uptrend lines and the psychological 1.40 acting in its defense to the downside. As for the upside, the EUR/USD will just build more obstacles to the upside the more it declines. The immediate-term hurdles to the upside are intraday highs and our 1st tier downtrend line. A recovery into the meat of the 7/20-7/28 trading range could be a positive develop and allow the EUR/USD to build a new base. However, Friday’s high volume shows immediate-term momentum is still in favor of the downside.

Present Price: 1.4175

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