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Forex: Bearish developments on EUR/USD weekly chart worth watching

FXstreet.com (Barcelona) - The EUR/USD finished the day down 50 pips at 1.2880. It was a busy economic release schedule during the European session, with a number of GDP figures due out which for the most part came in below expectations. However, data out of the US also missed with the NY Empire Fed print coming in at -1.43 vs. 4.00 estimates, and Industrial Production coming in at -0.5% actual vs. -0.2% estimate.

According to analysts at BNZ, “Advanced European Q1 GDP figures were disappointing. The contraction in Eurozone GDP (the 6th consecutive one) was slightly larger than expected at -0.2% (vs. -0.1% expected) with a meagre +0.1%q/q increase in German GDP growth particularly worrying (+0.3% expected). Signs the European, and particularly German, economies continue to struggle have seen the EUR underperform overnight. The EUR/USD skidded from 1.2940 to 1.2860, amid heavy selling of EUR crosses.”

They went on to add, “Tonight market attention will remain on the US, with another swathe of second tier data due for release. Any additional disappointment would see the USD reverse a little more of its recent gains. The fact San Francisco Fed President Williams, a dove, is due to speak perhaps further skews the USD risks to the downside.”

Another interesting development of late has been the watching the previous correlation of weaker euro having a negative influence on global equities continue to break down. A few weeks ago the euro seemed extremely stubborn to trade lower, particularly on days when equities were well bid throughout the day. However, the last few days we have seen just the opposite. Today the S&P 500 closed at a new all time high of 1658, finishing up another 0.54% while the euro drifted lower all day. Commodities also seemed to be at the mercy of US Dollar strength, particularly gold and silver which both finished the session deeply in the red.

In what has already been a very busy past few days from an economic release standpoint, there are still some key reports worth watching before all is said and done this week. Tomorrow we will get CPI figures from both regions, as well as a swath of data later in the US Session including Building Permits, Housing Starts, and Philadelphia Manufacturing.

So what are the charts saying after today’s declines and ahead of all this important economic data? According to Val Bednarik of FXStreet.com, “Not a good day for EUR: the common currency hit its lowest level in over a month against the greenback, testing 1.2841 on the back of disappointing GDP readings in France, Germany and the EU itself: he euro zone's economy contracted for the sixth straight quarter at marking its longest recession of the last 20 years.

She went on to add, “The fall in the pair however stalled after US also disappointing data on the manufacturing and industrial sectors: hopes QE will end this year diminished, and stocks rushed again, to fresh record highs. The 4 hours chart, technical readings maintain s a strong bearish momentum, supporting the shorter term view, with market now eyeing 1.2744, this year low.”

From a longer term technical perspective, the weekly chart looks to be nearing completion of the large head and shoulders pattern which has been forming since early Sept 2012. Given the time span and projected measured move this pattern presents, it should not be overlooked should the pattern be confirmed. A weekly close below the neckline of 1.2770 would confirm the pattern and set longer term measured move price target of down near 1.1870.

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