EUR/USD Finds Resistance on Pullback; US GDP on Tap

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EUR/USD Finds Resistance on Pullback; US GDP on Tap

The EUR/USD is starting the week with a bounce off the 1.2360 low on the year. Let’s rewind a little to Friday when Draghi talked of more stimulus and the market sold the euro across the board. The bearish reaction brought EUR/USD to its 2014-low. To start the week, we got a better-than-expected German Ifo Business Climate reading, which paved the way for further pullback.

EUR/USD 1H Chart 11/25
eurusd 1h chart 11/25
(click to enlarge)

If should be noted that Friday’s decline was a sharp one that covered November’s entire consolidation range. It signaled bearish continuation, and still looks bearish after today’s rally. The rally is vulnerable and is now at a selling point.

The 1.2440-1.2450 area was a previous support, and we are seeing price hold here as the 11/25 session got underway. Note that price is also respecting the 50-hour SMA, and teh 1H RSI held at 60. This shows maintenance of the bearish bias and momentum.

The EUR/USD looks ready to continue the downtrend with the US GDP data on tap for Tuesday (11/25).

US Preliminary GDP (Q3) annualized
Forecast: 3.3%
Previous (Advance Estimate): 3.5%
US GDP Q3 2014

 

(click to enlarge; source: forexfactory.com)

The second estimate of GDP for Q3 in the US is expected to be slightly lower than the first “advance” estimate. This should not prove material in terms of impacting the FOMC’s time-line for raising rates around mid-2015. If we get a reading under 3.0%, we might get some concerns, but a reading around 3.3% should still support the USD.

Levels and Outlooks:
The 1.2440-50 level is the first resistance. If this area breaks, we should watch the 1.2480-1.25 level. Here we have some common resistance levels within November’s consolidation range, and the 100-, and 200-hour SMAs.

If EUR/USD climbs back above 1.25 the bearish continuation scenario might be on hold for further consolidation/bullish correction. This is most likely if GDP data disappoints. But if EUR/USD climbs above 1.25 even if GDP data surprises to the upside, it would show a failure of good US data to push USD further, which suggests a period of consolidation/bullish correction in EUR/USD.

If price can hold below 1.25 after the release, the EUR/USD should be bearish. Now let’s say GDP misses forecast, and EUR/USD rallies. If 1.25 holds, we should still expect further downside risk, especially if price is able to return below 1.24. If data is good, then we should expect pressure on 1.2360. Again, if the initial reaction to good US-data is not USD-strength, we will really have to see if EUR/USD can hold below 1.25. If not, good-data and EUR/USD breaking above 1.25 would be a strong sign for consolidation/correction as noted above.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.