The EUR/USD popped slightly yesterday as Tuesday’s positive economic sentiment data carried over into Wednesday’s session. However, Wednesday’s rise failed to touch 1.40 and the EUR/USD is consolidating around our 3rd tier uptrend line right now. When viewing the 1-hour, we notice the currency pair continues to register larger volume to the downside than the upside. Therefore, we believe considerable momentum to the downside remains. The near-term test will be the ability of the EUR/USD to stay above our 2nd tier downtrend and uptrend lines. These two trend lines are reaching an inflection point within the next 24-48 hours, highlighting the importance of the moment.

Meanwhile, the S&P futures are drifting lower with a retest of 900 in the making. Even though the psychological 900 level should prove to be a reliable near-term cushion, a sizeable pullback could be approaching. Due to the positive correlation between the EUR/USD and U. S. equities, the fact that the S&P’s fundamentals are deteriorating certainly doesn’t bode well for the EUR/USD’s upside, particularly at a T-Junction like now. If the EUR/USD’s 2nd trend lines don’t hold, we could witness another hefty pullback towards 1.35. While we have a negative mentality in regards to our near-term outlook for the EUR/USD trend-wise, the uptrend beginning in October 2008 still has quite a few lines of defense to rely upon. As for the upside, if the EUR/USD can climb above 1.40 we could see a near-term pop towards our 3rd tier downtrend line.

The EU won’t release any more economic data until Friday’s German PPI. Data from the EU continues to be mixed, yet has come in positively lately, giving the EUR/GBP a bit of a pop. Investors will be paying more attention to the behavior of U. S. equities over the remainder of the week as they watch the S&P’s reaction to 900 should it be reached.

Copyright 2009 FastBrokers, Latest Forex News and Analysis for Forex, Bullion and Commodity Traders.  

Disclaimer: For information purposes only. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained. There is a substantial risk of loss in trading futures and foreign exchange.