Good day FX men and women! Here’s an update on the fiber or the EURUSD pair which I posted on July 2 (please see my last entry here). Back then, I asked if the euro bulls are back in play since the EURUSD had just broken out from an inverted head and shoulders. Indeed the pair continued to rise after the breakout. Though, if you look at today’s chart, you will notice that it is dangerously approaching the long term downtrend line. Now, the pair would most likely experience a lot of selling pressure in that level and it could once again dip if it’s not successful in moving past the mentioned resistance. If the pair manages to break above the downtrend line, it could easily reach for its upside target around 1.3000, which is computed by projecting the height of the inverted head and shoulders from the point of breakout. But if the resistance holds, its obvious support would be the neckline of the said pattern.
The euro’s rise came as a surprise since it happened following a disappointing US Ism manufacturing PMI. As I’ve mentioned previously, downbeat economic data from the major economies usually causes risk aversion which normally leads investors back to the safety of the USD. In any case, the euro continued to swing higher due to the impressive gains in the global equities markets. The Stoxx 50, for one, surged by 2.16% yesterday.
The euro, however, could weaken once more upon the European Central Bank’s decision to maintain its interest rate at a low of 1.00%. Finance officials have been worried about the possible downturn of the global equities markets again. And given the euro zone’s on going battle with debt, having more liquidity in the financial market would better serve the ones that are in fiscal difficulty. Maintaining the current liquidity yet again, though, would be bearish for the EUR.