The EUR/USD topped out at our 3rd tier uptrend line yesterday and is contracting quickly as U. S. equities look to open sharply lower for the second straight session.

Lacking economically fundamental reasons for dropping, the EUR/USD is reacting to psychological blows dealt by George Soros and the IMF. Yesterday Soros reiterated his skepticism regarding the solvency of U. S. banks, and the IMF is rumored to announce it predicts that U. S. financials are exposed to over $3 trillion worth of toxic assets.

Additionally, the EUR/USD was already in a comparatively weak position against the Dollar as compared to most other major pairs due to the uncertainty regarding future ECB monetary policy.

The ECB is maintaining a loose policy stance by leaving the door open to possible currency intervention and quantitative easing if the economic environment should darken.

These factors combined are leaving the early April rally with a question mark as opposed to an exclamation point. The EUR/USD failed to breach March highs and the currency pair has tumbled back below the psychological 1.35 mark. The EUR/USD fell beneath our 1st tier downtrend line in the process.

On the bright side, the 1st tier uptrend line is alive, and April lows are intact. However, the EUR/USD is suddenly throwing the whole idea of a lasting uptrend into doubt. Therefore, the possibility remains that the economic storm returns and investors run to the Dollar for safety.

As a result, the uptrend and downtrends are squaring off once again with all eyes on the financial sector. The chips remains in the corner for the uptrend for now since the reasons for the present pullback are psychologically motivated.

We won't see any economic data from either the EU or the U. S. until tomorrow as focus shifts towards corporate earnings. Fundamentally, we find supports of 1.3223, 1.3192, 1.3162, 1.3126 and 1.3088. To the topside, we see resistances of 1.3271, 1.3323, 1.3351, 1.3375 and 1.3413.

The 1.35 area becomes a psychological barrier again with 1.30 serving as a key psychological cushion. The EUR/USD is currently exchanging at 1.3271.

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