The EUR/USD fell sharply last Friday after ECB president, Mario Draghi, talked about expanding its current stimulus measure amid low inflation expectations. The market faded the euro in anticipation of more stimulus and the possibility of QE. The EUR/USD broken November’s consolidation structure as it fell from around the top of November’s range to the bottom. It started the week testing the 2014-low at 1.2360.
(click to enlarge)
The 4H chart shows the market starting the week above the low on the year. As we got into the 11/24 European session, we got the release of Germany’s Ifo Business Climate data, which came in better than expected.
German Ifo Business Climate (November): 104.7
(click to enlarge; source: Ifo Institute)
Business Climate Rebounds: After 6 straight months of decline, the business climate index finally rebounded from October’s 103.2 to 104.7 in November. forecasts called for a slight dip. The current conditions component climbed to 110 from 108.4. The expectations gauge rose to 99.7 from 98.3.
Vulnerable Pullback: As we can see on the 4H chart, the euro got a little boost after the business climate data, and EUR/USD pushed above 1.24. However, we should see that this pullback in vulnerable to the prevailing downtrend. While the data was welcoming, it does not change the urgency for the ECB to add stimulus in order to deal with disinflation.
It looks like price is struggling to stay above 1.24, but if it EUR/USD does rally higher, we should monitor the 1.2450 first for sellers. This was a common support pivot in November, and could be resistance to a weak pullback.
The maximum bullish outlook from today’s rebound should be towards the 1.2485-1.25 handle, which was a support/resistance level – mostly a common resistance – during November’s consolidation. This is also where the 100-, and 50-period SMA in the 4H chart resides. Also, if the 4H RSI comes back up to the 50-60 area and stalls while price is in the 1.2450-1.25 area, we should anticipate a bearish continuation attempt to retest the 1.2360 low again with risk of breaking lower towards 1.23.
A break above 1.25 would likely shift the market from bearish continuation mode to further consolidation, and perhaps some bullish correction to threaten the 1.26 November high.
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