EUR/USD's Rally Sputters after Weak Sentiment and IP Data

The EUR/USD is flat-lining after disappointing economic sentiment and industrial production data from the EU. Disappointing Eco data from both the EU and U.S. are taking the wind out of the rally's sails. While we forewarned of expecting too much from industrial production, the reversal in economic sentiment delivers a slight blow to the concept of an economic recovery. Thought the German reading of 39.5 is below June's 44.8 and the expectation of 48, investors will likely keep their emotions in check before seeing next month's report. Investors are curious whether today's setback represents a reversal to the downtrend, or a natural bump on the way towards expansion (50+). We notice a spike in volume to the downside on the 1-hour after the U.S. released mixed economic data of its own. The S&P futures registered a similar spike in sell-side volume as investors react negatively to the higher than anticipated PPI and lower than expected core retail sales data points. However, the EUR/USD is bouncing off of our 2nd tier uptrend line and the currency pair appears to be stabilizing right now. Unfortunately for the bulls, the negative EU numbers come as the currency pair battles the psychological 1.40 level. The EUR/USD could use all of the help it can get since there are quite a few barriers and trends weighing down on price.

The EUR/USD has yet to experience large volume to the upside coupled with a technical move. Therefore, it seems the near-term momentum remains in the downtrend's corner. The EUR/USD faces challenging barriers to the upside, including 1.40, July 9th highs, and our 3rd tier downtrend line. Though the EUR/USD may continue to stabilize, our 3rd tier downtrend is drawing nearer, and the currency pair will need to make a directional decision sooner or later. As for the downside, any reversal below July 10th and/or July 8th lows on rising volume would raise a red flag. The EUR/USD has our 1st tier and 2nd tier uptrend lines to fall back on before these lows, so we don't expect any trend-setting reversals for the time being. The EU will release its CPI reading tomorrow, and after that the EU will be quiet for the remainder of the week on the data front. This leaves the ball in America's court both data and earnings-wise. Therefore, investors should keep a close watch on the S&P futures for any technical movement to either the upside or downside.

Present Price: 1.3975

Resistances: 1.3991, 1.4020, 1.4050, 1.4065, 1.4091

Supports: 1.3970, 1.3944, 1.3915, 1.3889, 1.3865

Psychological: 1.40

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