The EUR/USD has taken a turn for the worst in a hurry. The currency pair has returned almost all of its gains from the major rally in reaction to America's quantitative easing. Germany's Prelim CPI coming in lower than expected triggered Friday's selloff.

Furthermore, the ECB cautioned the economy may not be as stable as previously thought. Therefore, the use of quantitative easing and lower interest rates is back on the table. Hence, the EU could be wading in the same pool of massive liquidity as America, Britain and Japan.

As a result, the positive correlation between the EUR/USD and U. S. equities is back in full swing. It seems investors acted prematurely in sending the EUR/USD to such high levels. Despite the pullback, the uptrend still has multiple defenses including our 1st tier uptrend line and the highly psychological 1.30 zone. If the currency pair should continue its descent, the 1.30 level could prove critical.

The EUR/USD fought for months to break through this barrier, and falling back beneath would mean reentering the drudges of the February trading zone. Despite the sudden turn towards negativity, the EUR/USD is still in better shape than the Cable.

The ECB's benchmark rate remains at a relatively attractive level with quantitative easing untapped. However, if the U. S. economy should take another leg down, the downturn could force the ECB's hand.

The EU has a few scattered releases before Thursday's key ECB meeting and decision concerning monetary policy.

Fundamentally, we find supports of 1.3162, 1.3124, 1.3092, 1.3044 and 1.2996. To the topside, we see resistances of 1.3205, 1.3253, 1.3291, and 1.3334. The EUR/USD is currently exchanging at 1.3179..

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