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Technical picture continues to become more bearish for EUR/USD

FXstreet.com (Barcelona) - The EUR/USD traded in a fairly narrow range, closing flat on the session at 1.2883. After recent US economic data had come in better than expected the past few weeks, this week has been a different story to say the least. Economic reports out of the US came in below expectations again in the past session, which initially helped the EUR/USD bounce off earlier lows made during the European session. The only major report due out of either region will be the Michigan Consumer Confidence data at 13:55GMT

According to analysts at Westpac, “EUR/USD rallied from under 1.2850 early London to a high of 1.2930 after the mostly weak US data. The subsequent decline to 1.2870/80 came in part on comments from European Commission’s Tajani who said the euro is too strong and that the ECB should be “more like the Fed”, managing the “currency in a way that supports exports.”

They went on to add ”EUR/USD fell about 30 pips on comments from SF Fed president Williams, who said that the Fed could “reduce somewhat the pace of our securities purchases, perhaps as early as this summer” and end the program late this year “if all goes as hoped.” Williams actually made the same comments on 3 April but the market is very sensitive to all talk of QE ‘tapering’.”

However, there were also remarks from Eurozone officials that helped cap any serious EUR/USD advances. According to Kathy Lien at BK Asset Management, “The euro came under selling pressure today against the U.S. dollar after European Industry Commissioner Tajani tried to talk down the currency. As the head of an agency whose goal is to protect the export sector, Tajani complained that the euro is too strong and called on the central bank to manage the currency in a way that would help exports. Considering that the euro has been in a downtrend since the beginning of the month and has lost over 5% since the beginning of February, some investors may be surprised by the timing of Tajani's comments”

From a short term technical perspective, the 1 hour chart is starting to display charteristics of picking up bearish momentum. The RSI (14) has recently broken back below 40 (note it failed the 60 level perfectly on two different occasions yesterday), which could contribute to further momentum selling. Furthermore, price remains below both the 9 and 20 dma’s which should continue to influence a “sell the rally” mentality.

Furthermore, looking at the long term picture there are two important developments to point out. The first is that the pair is now approaching a support trend line (1.2850 area) on the weekly chart that connects the swing lows from late July 2012 and March/April 2013. A break of this level would most likely lead to further selling down towards the 1.2770 (neckline of head & shoulders on weekly chart). Note this pattern has been forming since Sept 2012, and if confirmed has a measured move price target down near 1.1870. It should be noted the ADX (7) is still downward sloping and at an extremely low value (21.40) on the weekly chart. Expect this indicator to really take off and display strong trend characteristics should the head & shoulders top pattern be confirmed.

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