The EUR/USD has topped out at our 3rd tier downtrend line, just beneath the psychological 1.45 level. The currency pair is consolidating with a downward slope after U. S. employment and non-manufacturing PMI data came in below analyst expectations. Investors have been waiting for an opportunity to lock in some profits, and they are jumping at the opportunity.

Despite today’s pullback, the upward momentum is still intact with volume declining to the downside. Though economic data from the U. S. missed the mark, the data is not too disconcerting, and by no means derails the concept of an economic recovery. Today’s setback in employment and non- manufacturing PMI is likely a symptom of a slow return to growth. Countering these negative data points are equally positive numbers across the board from Britain. Therefore, the economic data today is bittersweet.

Meanwhile, investors are looking beyond today’s pullback towards tomorrow’s ECB meeting. It is difficult to believe the ECB will lower rates or increase its alternative liquidity package due to the impressive recovery taking place globally. However, the EU’s economic data has been underperforming as of late compared to that of Britain, China, and the U. S. Furthermore, the ECB has a little flexibility monetarily since its benchmark rate is still at 1%. The ECB has also been prone to administer monetary shocks in order dislodge the currency’s pattern. An appreciating Euro is undoubtedly applying pressure to the EU’s strained manufacturing sector. Therefore, now would be an opportune time for the ECB to administer a monetary shock in an effort to depreciate the Euro since most analysts are expecting the ECB to stand pat on its monetary policy. However, it is likely the ECB will keep its policy as is in the belief that a recovery in global consumption and demand will compensate for the Euro’s rapid appreciation.

As for the immediate-term, the EUR/USD may experience a little more selling pressure with investors cashing in on mixed global data. Therefore, we wouldn’t be surprised to see the currency pair duck down towards our 3rd tier uptrend line. Speaking of which, the EUR/USD is trading above all three of our uptrend lines with only a makeshift
3rd tier downtrend line clamping down the currency pair. The EUR/USD remains comfortably above June 3rd and July 28th highs. Hence, the uptrend is clearly in control in the moment, and it would take a large technical downward movement to dislodge the EUR/USD’s upward momentum.

Our 3rd tier downtrend line and the psychological 1.45 level appear to be the only near-term barriers separating the EUR/USD from a retest of December 18th highs. The other factor capping the EUR/USD’s upward mobility is the S&P’s interaction with 1000. The 1000 area should prove to be a challenging obstacle. The S&P’s ability to leapfrog 1000 should play an important role in the EUR/USD’s ability to overcome its own barriers to the topside. Therefore, investors should keep a close eye on U. S. equities along with tomorrow’s central bank meetings.

Present Price: 1.4372

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