The EUR/USD retraced to the 1.41 zone as we anticipated before rebounding early Friday from our 1.4142 support on the 4-hour. Ignoring the large rally in U. S. equities, investors chose to make their decisions based on the discouraging flow of data we’ve seen from the EU over the past couple weeks. However, the bulls are back at it again after today’s EU PMI data points showed resilience in their fight towards growth (50+).

The only drag was France’s services PMI, indicating a slight reversal. The EUR/USD responded by climbing back above our 3rd tier downtrend line. Unfortunately for the bulls, volume is slacking and the EUR/USD is a good distance away from previous July highs. Hence, the EUR/USD may finish out the week with additional consolidation since the S&P futures are overheating after disappointing earnings from MSFT, AXP, and AMZN. Additionally, we notice gold has quite a few immediate-term obstacles to the upside and the precious metal has been strongly correlated with the EUR/USD lately. As a result, the EUR/USD may not stray far from our 3rd tier trend lines today.

The EUR/USD has built up a nice base to fall back on during the consolidation process, including our 2nd tier and 3rd tier downtrend lines and Thursday lows. However, if the EUR/USD consolidates with a downward slope, the currency pair may enter a head and shoulders pattern. The EUR/USD will be relatively quiet on the economic data front next week, leaving its fate in the hands of the U. S. If the S&P futures should cool next week and pullback in the wake of profit taking, the EUR/USD may experience additional selling pressure since the currency pair has been under relative downward pressure due to overall weak data from the EU.

As a result, investors should keep a close eye on the S&P and monitor its ability to retain a majority of its gains while forming a new base. On the other hand, if the S&P futures should continue their march ahead, the EUR/USD may be dragged higher since the economies are coupled. The EUR/USD has quite a near-term battle to the upside due to the lid being constructed around July highs.

Furthermore, June highs are hanging far in the distance. The EU will get the week started early next Monday with GfK German Consumer Climate and M3 Money Supply data. Better than expected numbers could combine with today’s PMI data to help buoy the EUR/USD. On the flipside, discouraging data would only add onto the immediate-term downward pressure.

Present Price: 1.4215

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