The EURUSD declined during yesterday's session to 1.2705 following rumors that the ECB was ready to start buying European corporate bonds. The effect of this is to stimulate the economy through monetary easing. The effect of increased money supply is to erode the value of the currency, in this case the Euro, just as a stock price declines when the company announces a plan to issue new or more stock. This dilutes the value of existing stockholders and the same in a currency. We noted yesterday that:
"The EURUSD has returned to test the 1.2845 level morning for a sixth time. The previous five times the price has declined to the mid and low 1.27s." (Please see the 30 Minute Chart)
And this followed our observation on Friday: "On the other hand there is potentially a triple top formation at 1.2840-1.2845 whereby as long as the price holds below this level the setup could favor a downside move. Just below 1.2840, ie between 1.2820-1.2840 could offer favorable odds for put options on price declines." Now the price of the EURUSD is at 1.2735 after declining to as low as 1.2705. The price declined from the 1.2840 area once more yesterday. The next time the price rises to this area there could be an upside breakout following 6 failures. Nothing can be certain in forecasting price movements. The aim is to shift the odds into your favor.
Yesterday US Existing Home Sales data printed at a better than expected rate of 5.17 million annual and this bolstered the US Dollar. Today we await the 30yr German Bond Auction and USD Core CPI, the US data could lead to strong market movements. Also, today there is the Canadian Interest Rate decision due and any surprises there could reverberate through fx markets. At present the Euro is under pressure with the pair below 1.30 and still trading below the downtrend channel as seen in the H4. As long as the pair remains below 1.30 and below the downtrend channel, the bias remains bearish. - This has been the outlook for over a month now but the picture is a little more mixed as the pair has re-entered the lower end of the downtrend channel as seen in the H4 Chart. Overall the bias is still negative for the EURUSD although there is more hope for the bulls now due to the price action of the last two weeks. EURUSD Support areas include 1.2700, 1.2600 1.2500, 1.2425, 1.2300. Resistance levels above are at 1.2845, 1.2800, 1.2900, 1.30 figure level, followed by 1.3165.
EURUSD 30 Min Chart
EURUSD 4 Hour Chart
Pivot Point Table
The GBPUSD has pulled back and fallen below the key 1.6127 area. Looking at the Hourly Chart there is a double Head and Shoulders, one smaller inside of a larger Head and Shoulders. The first H&S is at 1.6127 and the higher one is at 1.6227. The pair had managed to penetrate the first area of 1.6127 on its way to 1.6180 but fell short of the larger level at 1.6227 and has gone below 1.6127 falling to 1.6112 in the process. The price has remained within the weekly range of 1.6080 -1.6181. We noted in yesterday's write-up that: "A failure to rise above the 1.6227 area will lead to a bearish Head and Shoulders pattern that could push the pair lower." The GBPUSD is still doing well and is significantly above last week's low point of 1.5875. Overnight in Japan the Trade deficit widened to 1.07 Trillion YEN vs forecasts of 0.91T while in Australia the CPI rate grew to 0.5%. Today the MPC Asset Purchase Facility Votes and the MPC Official Bank Rate Votes will be released for the GBP and US Core CPI in the USD, these releases directly affect the pair.
The RSI on the 4 Hourly Chart had reached 66.5 at a price of 1.6113 and declined to 30.0 during a move down to 1.5875. The pair then reacted perfectly to the indicator that indicated we were in oversold territory as it bounced higher during this 250 pip move. Yesterday we noted that the RSI has returned and exceeded this level reaching 70 this morning and is in overbought territory. The price duly declined soon after we released this report. The RSI is now at 45.67 and may have some way to decline before a rebound occurs. The pair remains above the downtrend line drawn on the H4 Chart.
Support levels for GBPUSD can be seen at 1.6050, 1.6000, 1.5900, 1.5850, 1.5800, 1.5725, and 1.5650. Resistance to the upside at 1.6127, 1.6200, 1.6250, 1.6300, 1.6375, 1.6450, 1.6500.
GBPUSD H1 Minute Chart
GBPUSD 4 Hour Chart
GBPUSD Pivot Table