Fundamental:
This week should help give some direction of where the EUR/USD is headed. With more details about the Quantitative Easing (QE), corporate earnings, the beige book and G20 meeting we should expect a nice retracement or jump to a new high. Most likely however, momentum from the QE news has already been factored into price movement in the currency market so I'm not expecting too much movement in regard to QE news, unless the news is largely different than expected.
The greenback is looking to retrace after suffering such a large fall, but last night the gains the dollar made were returned on anticipation of QE. The dollar is ready to continue the retracement but it needs some support from fundamental news. Whether that comes from dismal news with QE expectations or ECB attempting to weaken the Euro, there needs to be some fundamental support for a significant retracement in the dollar.
Technical:
The Eur/Usd reached a high at 1.41593 on Friday and quickly retraced down to 1.39337. Monday it hit a low of 1.38429. The dollar index has broken through its downtrending channel and has done a little bit of a pull back. Most reversals will have a breakout, followed by a retracement and then continue with the breakout. I am skeptical if this is a false break out or not and will look for a close below 1.3800 to help confirm a dollar retracement (aka decline in the Eur/Usd).
After 28 days, the Eur/Usd closed below below a higher low. In Monday aftermarket news, despite positive earnings announcements, futures markets were significantly down. These two signals may show that market sentiment is exhausted and a pullback may be in the works.
It looks like the next upward movement for the Eur/Usd could be 1.44265 which is the 78.2% retracement of the December 2009 decline. As far as downward movement, I would expect the decline to continue to the 1.3500 range and then continue its upward movement.
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