The EUR/USD rallied nicely yesterday, tagging along with impressive gains in U. S. equities. The movement was a refreshing recovery for the EUR/USD since the currency pair had previously dropped below our 2nd tier downtrend line while hitting our previous bottom-end of 1.3422. The upswing is cooling off today as yesterday's movement lacked convincing volume and the S&P futures are struggling with previous May highs.

The EUR/USD is battling with May highs of its own, meaning it wouldn't be surprising to see some near-term consolidation with slight downward pressure. Furthermore, the fact that the EUR/USD didn't rally strongly after much better than expected economic sentiment data shows the currency pair could be overbought. On the other hand, if the EUR/USD and put some upward momentum together and get above previous may highs, we could witness a sizeable near-term pop towards the highly psychological 1.40 level.

Regardless of near-term obstacles, the EUR/USD is showing resilience above our 2nd tier downtrend line and the psychological 1.35 level. Therefore, the EUR/USD is sending a clear bullish message trend-wise with key medium-term downtrend pressures out of the way.

As usual, the ultimate direction of the EUR/USD relies heavily upon U. S. equities. The S&P futures staged quite a rally yesterday and are back above the psychological 900 level, making a convincing argument for the continuation of its uptrend. Therefore, equities are performing in favor of the EUR/USD's uptrend. As a result, we maintain our bullish outlook on the EUR/USD as long as the currency pair can stay above our downtrend lines and the 1.35 psychological level.

However, the EUR/GBP is showing considerable downward pressure, indicating the Euro could continue to experience relative weakness over the medium-term. The EU will be quiet on the news front until Wednesday's German PPI where investors are looking for an improvement in producer prices.

Fundamentally, we find resistances of 1.3626, 1.3646, 1.3674, 1.3702, and 1.3735. To the downside, we see supports of 1.3589, 1.3555, 1.3528, 1.3490, and 1.3467. The 1.35 area serves as a psychological cushion with 1.40 acting as a psychological barrier. The EUR/USD is currently exchanging at 1.3616.

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