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EUR/USD hurt by QE comments; Ready to fall?

FXstreet.com (San Francisco) - The Euro was unable to hold the 1.2900 level against the Greenback and following the Fed's Williams comments on the Fed tapering the QE as soon as the summer and finishing it by the year-end, the EUR/USD closed Thursday's session at 1.2885.

The pair is currently trading around 1.2875/80, where it is virtually unchanged since Thursday opening. According to the FXstreet.com trend index, the pair is slightly bullish in the 1-hour timeframe as indicators such as MACD and Momentum are pointing to the north while the CCI is bearish and the Stochastic is neutral.

Late in the American session, the US currency received a boost from the San Francisco Fed’s chairman Williams, who reiterated his view that the Fed could trim accommodation in the next few months. However, could anyone believe that the US economy is strong enough to the fed take the decision to tap the QE? Williams is a dove Fed member and despite the comments were surprising as recent economic data in the US has came weaker than expected, it isn't the first time Williams says that.

However, the common currency erased completely its daily gains versus the greenback and fell below the 1.2890, "the level that capped the upside most of past Wednesday," points FXstreet.com analyst Valeria Bednarik. "The hourly chart shows price below 20 SMA while indicators turn south and approach their midlines, suggesting further slides ahead: 1.2840 this week low, is the level to beat to confirm and extension towards 1.2744 this year low."

Among these lines, with the euro zone contracting for its sixth consecutive quarter and, of course, leaving the door open for another negative print in the Q2 GDP, it seems more and more plausible that those peaks in EUR/USD back in February will be remembered as the best moments of the cross in the present year.

Olivier Korber, FX Strategist at Societe Generale, noted in a recent report that the "US data was poor but poorer EU data drives USD higher." Korber pointed that soft data in the US could add pressure to the Greenback but the economic situation in Europe is even worse.

“The continued depreciation of EUR/USD drove the DXY Index to reach an intraday high of near 84.10, almost matching the high reached in July 2012," Korber continued. "We recommend a risk-neutral short EUR basket trade for those who look to sidestep the periodic short-covering rallies in EUR/USD."

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