The EUR/USD broke below our neckline yesterday, logging the selloff we anticipated. Yesterday’s move came on large volume, continuing the theme of considerable activity to the downside. So far this month we’ve seen rising volume to the downside on 6/4, 6/5, 6/10, and now 6/15. The heightened interest on the sell-side could indicate there is more room to go to the south.

In addition to snapping the neckline, the EUR/USD closed beneath 5/28 lows, another negative technical indicator. While we could see an immediate-term recovery towards our 2nd tier downtrend line and uptrend lines, we likely won’t witness any sizeable, game-changing gains. The S&P futures also made a key technical pullback yesterday. Due to their positive correlation, the movement of the S&P further supports our negative outlook on the EUR/USD. It appears as if the next stop for the EUR/USD could be our 1st tier uptrend line and/or the 1.36 area. This would likely serve as the next point of consolidation should the currency pair decided to stabilize and turn around. As for the upside, the EUR/USD would need to fight back above our 2nd tier uptrend line and the psychological 1.40 level on large volume for us to alter our near-term outlook.

Meanwhile, the Euro continues to experience relative weakness across the board, emphasized by the deterioration of both the EUR/GBP and EUR/JPY. The weakness results from the comparatively spotty data from the EU during the recovery process. Additionally, investors could be showing the ECB has acted insufficiently in regards to their monetary policy in reaction to the economic crisis. Flight to the Dollar could continue as investors try to diversify and decrease their overall risk exposure. However, we do maintain our positive outlook for the medium-term.

The medium-term downtrend line formed through 12/18 lows, or our 1st tier downtrend line, is still far out of reach. As long as 1.35 in the EUR/USD and the 900 area in the S&P are intact, the currency pair is in pretty good shape technically for the longer-term. On the other hand, we have yet to see if the pullback we’re witnessing is healthy, or a reversal into the medium-term downtrend. Ultimately, the fate of the Dollar relies upon the outcome of the current economic stabilization taking place. If we are not witnessing a true recovery, then the Dollar would likely appreciate heavily once again. However, we would need to witness a large, broad-based contraction in economic data globally. Therefore, we maintain our negative near-term outlook and positive medium-term outlook on the EUR/USD trend-wise.

The EU will release key economic sentiment data along with its CPI number. The U. S. and Britain will release important economic data points of their own, so we expect another session of high volatility. 

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