The EUR/USD’s medium-term uptrend flexed its muscles yesterday, driving past 1.47 on solid buy-side activity. The EUR/USD benefitted greatly from a return to risk following better than expected U. S. Industrial Production and Capacity Utilization. As we explained in our previous analysis, the EUR/USD had few technical barriers to the topside, allowing for accelerated gains in the currency pair. However, the bulls ran out of gas and the EUR/USD has topped out this morning, dipping back beneath December 2008 highs.

Weakness comes despite an absence of EU econ data and slightly stronger than expected U. S. Weekly Unemployment Claims. Hence, we view today’s pullback as a symptom of overbought conditions. The EUR/USD’s uptrend is alive and well due to a combination of outperforming global econ data and the ECB’s hawkish stance towards monetary policy.

The EU will cap the busy data week early Friday morning with German PPI and EU Current Account numbers. Analysts are looking for Germany’s PPI to turn positive for the first time since October 2008 as well as a narrowing Current Account deficit. Rising prices and a recovery in the Current Account would help support the ECB’s decision to refrain from injecting more liquidity in the monetary system, a positive catalyst for the EUR/USD.

Meanwhile, the EUR/USD could experience noticeable near-term resistance due to the historical consolidation between December 2008 and September 2008 highs. The currency pair will likely opt to build a new base unless we receive impressive economic news in the immediate-term. Considering Friday and Monday will be light on the data front, the next few trading sessions provide a great opportunity for investors to lock-in some profits ahead of the important EU PMI data releases next Tuesday. We’ve readjusted our trend lines and still can’t form a downtrend line of substance. Hence, the EUR/USD still has quite a bit of upward mobility despite historical consolidation in this area along with the highly psychological 1.50 level. An eclipse of September 2008 highs would serve as yet another signal that the global economy is on the path to recovery. As for the downside, the EUR/USD has multiple uptrend lines as Wednesday lows to fall back on. The currency pair is separating itself from the psychological 1.45 level, another positive indicate for the EUR/USD trend-wise. 

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