The EUR/USD has hit a wall and is consolidating with a downward slope after the Euro Zone’s industrial new orders data showed slight contraction while analysts were expecting a swing to growth (-0.2% vs. 1.9%). The Euro is also digesting the fact that French consumer spending came in higher than expected. However, we believe the EZ INO number is more prevalent since we’ve seen French CS flutter between growth and contraction. Hence, the EU continues to display a theme of disappointing data. Over the past week and a half investors have received discouraging data concerning EU economic sentiment, pricing, and now manufacturing. The economic data shows that although the peak of the crisis may be behind us, the economic return to growth could be a long, steep road.

Despite the recent negative data points the bulls continue to hold the line, preventing a protracted pullback. Near-term investor sentiment is still on the upswing with the confidence that the economic recovery will keep on trucking. The EUR/USD confirms investor confidence by trading comfortably above weighted medium-term downtrend lines and the psychological 1.40 level. Furthermore, there’s a dense trading range wielding an upward slope between June lows and highs. However, the immediate-term tells a different story. Investors are exercising caution after today’s disappointing data coupled with mixed earnings from the U. S. Though the majority of U. S. 2nd quarter earnings have been positive thus far, investors are digesting some questionable results from Morgan Stanley and Wells Fargo. Additionally, corporations beating analyst bottom-line estimates come on declining revenue and strategic cost-cutting. As a result, there remains an uncertainty concerning the prospect of future growth.

We’ve tweaked our trend lines, and see a new immediate-term wedge between our 3rd tier uptrend and downtrend lines. If the EUR/USD should break below our 3rd tier uptrend line we could witness a pullback towards our 2nd tier uptrend and the 1.41 area. Meanwhile, the EUR/USD is trading well above the psychological 1.40 level, and has quite a few cushions between 1.40 and present price. As for the upside, the EUR/USD now has to deal with fresh July highs and then June highs. Therefore, there are a few speed bumps on the road ahead. An immediate-term fluctuation between our 3rd tier trend lines would not be surprising. As usual, the EUR/USD’s path is highly reliant on the S&P futures. Should the S&P break out of its own obstacles the EUR/USD would likely follow suit due to their positive correlation. 

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