The EUR/USD tumbled yesterday, collapsing through several key supports, including the highly psychological 1.30 level.  EU economic data has outperformed over the past week, making Monday’s large decline all the more worrying.  The EUR/USD is presently fighting to stay above April lows in order to avoid a fundamental collapse. 

The outbreak of Swine Flu is hitting the Euro particularly hard as investors run towards the Dollar and Yen for cover.  The currency pair should continue to follow its positive correlation with U.S. equities to a tee due to the lack of economic data from the EU.  The WSJ announced that the stress tests may show C and BAC will require more capital, meaning the economic worries persist. 

Hence, if the S&P futures stumble under the pressure of our downtrend lines, the EUR/USD may be inclined to follow suit.  We could see a battle in the 1.30 area today as investors hesitate to let the psychological level go.  On the other hand, if the EUR/USD were to leave 1.30 and our 1st tier uptrend line behind, we could see the current selloff pick up speed.  We have a negative stance on the EUR/USD trend-wise with the Swine Flu putting the brakes on an economic recovery.  If the flu were to reach epidemic status, the EUR/USD may be forced beneath April lows.     

Fundamentally, we find supports of 1.2987, 1.2949, 1.2920, 1.2892, and 1.2866.  To the topside, we see resistances of 1.3044, 1.3072, 1.3123, 1.3167, and 1.3199.  Although 1.30 is serving as a cushion right now, it could soon become a psychological barrier.  The EUR/USD is currently exchanging at 1.2988.

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