EUR/USD has been consolidating in somewhat of a triangle as you can see in the 4H chart. After today’s poor US data, traders faded the USD, and EUR/USD broke above the triangle resistance, about to test June’s highs around 1.3675.
(eurusd 4h chart, 6/25)
The 4H chart also shows a market trying to build bullish momentum, as evidenced by the RSI, which almost tagged 70, stayed above 40, and is now turning back towards 70. Price bouncing off the 100- and 50- SMA, and breaking above the 200-SMA in the 4H chart also reflect a short-term bullish correction in progress.
(eurusd daily chart, 6/25)
However, that June high will be key to whether EUR/USD is in a sideways consolidation in the coming weeks, or whether it will shift to a bullish correction. Note that the 200-day simple moving average also resides around that 1.3675 resistance.
This bullish breakout can be attributed to some disappointing Durable Goods and GDP data out of the US.
Poor US Data
Final GDP (annualized, Q1): -2.9%
Previous estimate: -1.0%
Just about all market watchers were wrong about the GDP revision. Even though most knew that a downward revision for Q1 GDP was needed, today’s figures show that the economy started 2014 in a much worse contraction than previously though.
The -2.9% reading was the worst since Q1 2009 when it was -5.5%. According to Bloomberg, it was the biggest downward revision for the final reading from the second since records began in 1976.
Okay, so the economy shrank more than expected in Q1. What about more recent data? Today’s Durable Goods data for May also brought bad news.
Durable Goods Orders (m/m, May): -1.0%
Previous: 0.6% (revised down from 0.8%)
Core Durable Goods Orders (m/m, May): -0.1%
Previous: 0.3% (revised up from 0.1%).
The unexpectedly poor durable goods data magnifies the concern that although the economy should improve from the downturn in Q1, economic data in Q2 could be underwhelming.
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