The EUR/USD is recovering from our important 2nd tier uptrend line after German Industrial Production came in much higher than expected, countering June’s setback to the downside. In fact, today’s release is the highest reading in years, and should help ease investor uncertainty for the time being. In addition to today’s positive Industrial Production number, yesterday Germany reported a large, unexpected increase in Factory Orders. The recent optimistic signs from the Germany economy are helping stabilize the Euro despite growing pessimism in global markets.

That being said, we saw volume begin to rise to the downside yesterday as the greenback appreciated with U. S. equities posting sizable losses. Therefore, investors should keep a watch on the 15M, 30M, and 1H charts to see if volume continues to rise on the sell-side. If sell-side volume increases and the EUR/USD closes below our
2nd tier uptrend line, we could witness a more rapid pullback towards June lows and our 1st tier uptrend line. On the other hand, we very well may see the EUR/USD jog between our 2nd tier uptrend and downtrend lines today due to the positive data from Germany.

Since news will be relatively quiet on the EU front this week, we expect the EUR/USD to take its cue from U. S. equities and crude futures. The S&P futures are trading near critical supports, and any protracted downward movement in the S&P should be accompanied by a broad-based appreciation of the Dollar. We don’t expect the positive correlation between the EUR/USD and equities to change any time soon, so U. S. corporate earnings should play a big role in the currency pair’s immediate-term movements.

While the EUR/USD is bouncing off our 2nd tier uptrend line, the currency pair is trading back below the highly psychological 1.40 level. Furthermore, our 2nd tier and 3rd tier uptrend lines are reaching their respective inflection points with our 1st tier and 2nd tier downtrend lines over the next 24-48 hours. Since the S&P futures are trading around important supports, we believe the multiple inflection points in the EUR/USD may signify an approaching trend-making move. However, the 2nd quarter earnings season doesn’t really start cooking until next week, so the EUR/USD may choose to stay range-bound for the remainder of the week…Stay tuned. 

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