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Forex: EUR/USD faces worsening technicals/fundametals

The G20 meeting turned out to be, as one would expect, uneventful on its false sense of being regarded as a potential currency shaker. The delivery of generalized statements prevailed as opposed to any aggressive rhetoric, mainly due to the diversity of self-interest policy views. Chances are that speculation about jawboning on currencies will now likely fade, with investors hopefully in search of other hopefully more meaningful drivers to set currency directions.

The G20 meeting, which had generated, in the eyes of Marc Chandler, a great deal of needless noise in the foreign exchange room - the low flow of other news is also a factor to over-emphasize what deserve little credit -, with the analyst describing the event like a librarian yelling "quiet"... "it may be more disruptive than the initial noise" he said.

Recently, ECB's verbal interventions to downplay the 'currency war' story helped more than hurt the euro, thus if one is to follow such pattern, it is possible that the dissipation of further 'currency manipulation' comments may be a point that Euro bulls just scored on trying to reverse the short-term outlook on the pair.

On the flip side, the outlook on the Euro zone has been hit in the eyes of speculators, and that ghost of poor fundamentals will still be very much present in the mind of FX traders. Last week's contraction in France and German economies is not something that gets easily forgotten, and there is a thin line that separates the events from Euro corrective in nature to potentially be the trigger that may constitute a structural change in the still daily EUR/USD uptrend.

In order to trend-shift the EUR/USD in a more clear manner, large size flows should continue to enter the market to confirm that the uptrend has indeed its days numbered, and sellers are gaining not just short term control but more evidence of a structural shift. At the moment, such predictions would be only cheap speculation though, as all the good work done by Euro long plays since November last year still somehow prevails when readings the technicals.

However, this this is a week full of Eurozone economic reports on the calendar, which argues for fundamentals playing a key role again on setting the Euro tone. The German IFO is one of those key event to keep an eye on this week, although according to Kathy Lien, co-founder at BKAM, "the most important release in our opinion will be the European Commission's economic growth forecasts." Kathy thinks that "if their forecasts for growth or inflation are revised lower, the euro could resume its slide, while unchanged forecasts would likely add fuel to the EUR/USD rally."

Another case not to overlook, which may potentially weaken the prospects for the upside in the EUR/USD, is the recent affirmation from no other than Fed's Chairman Ben Bernanke, saying that "the US economy is recovering", a statement bold enough for speculators to have taken well notice of. The 5-carefully chosen words may see higher speculation about an early QE end, an event that while still far to be even taken too serious, may have a fair number of USD bulls excited.

Technically, Valeria Bednarik, chief analyst at FXstreet.com, notes: "The pair presents a shy bearish tone according to the hourly chart, with price right below a flat 20 SMA and indicators heading slightly lower, getting into negative territory. In the 4 hours chart technical readings are more bearish, supporting a downward move for this Monday: the daily ascendant trend line coming from 1.2660 stands today in the 1.3270 area, main bearish target. Stops below the level should be large, so any attempt to break lower may see the downside extending fast up to 1.3220 price zone."

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The Yen was the weaker currency across the board in Asian hours. The non-threatening G20 statement was an early catalyst that saw Yen sellers active in inter-bank trading, with then headlines from Japan's Prime Minister Mr. Abe on the possibilities to buy foreign bonds as an option by the next BoJ governor, giving all Yen crosses the excuse for a further boost. Late in Asia, the Yen managed to stall the fall, although just fractionally. The British Pound and the Australian Dollar had also a performance below average, yet the latter was able to fill its downgap. The Euro, meanwhile, has operated with little buying interest, with fundamentals / technicals still failing to communicate a reversal looms.
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