Weak US Data Helps EUR/USD Uncoil, Signaling Further Upside

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Weak US Data Helps EUR/USD Uncoil, Signaling Further Upside

The EUR/USD fell last week after the strong US NFP report gave the greenback a boost across the board. However, it was not able to completely clear below the 1.13 handle, holding above 1.1270. After several failed attempts to the downside, the EUR/USD rallied and broke above this week’s small consolidation range, with resistance around 1.1350. It is now stalling at 1.14, but the breakout has signaled further upside.

EUR/USD 1H Chart 2/12
eurusd 1h chart 2/12
(click to enlarge)

The rally came after some weaker than expected US Data:

US Retail Sales m/m (Jan.): -0.8%; forecast: -0.4%; Previous: -0.9%
Core Retail Sales m/m (Jan): -0.9%; Forecast: -0.4%; Previous: -0.9%.
Jobless Claims: 304K; Forecast: 282K; Previous week: 279K

Fundamental Recap:
Retail sales was week in December, and continued to slide in January. This trend is casting doubt on FOMC’s positive economic projection and intent to raise rates by mid-2015. The jobless claims did disappoint, but jobs data have been in a positive trend so one week of slightly worse than expected data should not have much impact outside of the session. Still, the retail sales data should make it hard for the USD to revive its strength, which started to fizzle at the end of the year.

Now looking back at the 1H chart, we can see that EUR/USD has the 1.15 high in site. Based on today’s data and reaction we should probably limit our bullish outlook first to this level. Based on the fact that the euro has been resilient after being dragged lower after the QE announcement, the EUR/USD could continue higher than 1.15 in the context of a bullish correction.

Failure to push above 1.14 and a return below 1.1320 however should be a sign that bears are taking over and should put pressure on the 1.1270 support with risk of breaking towards the 1.11 low on the year.

EUR/USD 4H Chart 2/12
eurusd 4h chart 2/12
(click to enlarge)

Resistance: The 4H chart, shows that above 1.15, the next key resistance will be in the 1.16-1.1640 area. This includes the 200-period SMA, and a previous consolidation resistance area. Let’s limit the bullish outlook to this level for now.

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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.