EUR/USD: 1.345 Resistance Holding Up

Hourly Chart
EUR/USD Hourly" title="EUR/USD Hourly" height="629" width="988">
Despite USD strengthening yesterday on QE taper speculation, EUR/USD actually climbed higher D/D, showing the strong underlying bullish sentiment in EUR/USD. The gains came in during early European hours, with prices trading above 1.345 during early US hours. The main USD push during US Midday only managed to push prices from the 1.345 ceiling to the 1.3425 soft support - coming in the form of the ceiling back on last Friday pre NFP.

What we need to ascertain is the reason that prices managed to push back above 1.34 during early European hours when there wasn't any major news during the period. In fact, the only European related economic news was German CPI, which came in less than expected M/M for the EU Harmonized component, shrinking by 0.3% versus a -0.2% estimate. Y/Y Harmonized similarly came in weaker at +1.2% versus an expected 1.3%. Hence if anything, economic news should be favoring bearish momentum as a lower than expected CPI for Germany gives ECB further scope to cut rates/ease.

On the other hand, the only bullish factor was technical based, with prices trading lower towards the 1.337 support - confluence with the soft ceiling back during early Monday trade and last Friday's closing action. But in the end, this is also a stretch to say that the resultant bullish rebound was able to break the day's swing high of 1.3415 and 1.3425 effortlessly. Sometimes there just isn't good reasons for market price actions, and perhaps yesterday's movement should be chucked under a box labeled - "the market moves mysteriously".

Nonetheless, this does give us a better understanding of what is happening - and the lack of good bullish reasons suggest that price may find it hard to break current 1.345 ceiling. Looking at Stochastic readings, we are technically in the midst of a bearish cycle, which opens up a move back towards the rising trendline. However, given the observation the underlying Short-term sentiment is bullish, conservative traders may want to wait until further confirmation is acquired (e.g. price breaking 1.3425 in conjunction with Stoch curve pushing below 70.0) for stronger bearish convictions.

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