The EUR/USD topped-out yesterday and is heading back towards our 1st tier uptrend line, or the neck of its head and shoulders pattern. Gold just collapsed beneath its own neckline, which could be foreboding of a similar occurrence in the EUR/USD due to their strong positive correlation. Therefore, investors should keep a close eye on our 1st tier uptrend line, which just reached an inflection point with our 1st tier downtrend line.

Meanwhile, the currency pair is trading back below the psychological 1.40 level. We can’t forget how we’ve seen stronger volume to the downside than the upside over the past week. Additionally, analysts are voicing their belief that U. S. equities are due for a healthy pullback themselves. In all, we have little reason to alter our negative near-term outlook on the EUR/USD since there aren’t any positive indicators we can find out there at present. If our 1st uptrend line doesn’t hold, we believe there could be a brisk pullback.

Meanwhile, investors should keep a close eye on the S&P futures. The S&P futures are testing their own 1st tier downtrend line. A break beneath here and May 7 highs could be accompanied by a hurried appreciation of the greenback across the board. Regardless of the near-term downward pressure, the EUR/USD’s medium-term uptrend line is safe for now. There are plenty of safety nets we can map out on the way down, so we aren’t overly concerned at the moment. As for the upside, if the 1st tier uptrend line can hold this would be a definite plus.

After all, the EU had a light week news-wise, so the currency pair could hold on to see how next week pans out. Speaking of data, the EU industrial production number came in well below expectations. However, we saw that one coming and investors shouldn’t be surprised since both Germany and France reported released disappointing industrial production data earlier this week. 

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