Looking at the technicals on the weekly chart (see below), I feel the pair will trade lower from here. Divergence can be seen on both the RSIs and stochastics, while the downtrend drawn from the 2008 high comes in around 1.3820.
The 61.8% retracement of the 2011 to 2012 sell-off also intersects at 1.3833 and has held up play of late. My proposed stop is above these levels, where a break would suggest a test of 1.4000.
On the daily chart oscillators are at elevated levels; this shows the strength behind the short-term trend and these aren’t at extremes by any means. On the hourly chart there is also divergence seen, with price making a higher high and the oscillators making a series of lower highs.
In terms of support, on the daily chart EUR/USD needs to fall through the downtrend drawn from the December 30 high at 1.3665, so traders could look to add positions on a close below here.
Fundamentally the market has priced in a fair bit of goodwill towards Europe, with improvement in a number of growth metrics in Germany, Spain and even France. However it’s worth bearing in mind that there has been growing rhetoric of late from a number of ECB officials about negative deposit rates, while much of the data series in the US has naturally been affected by weather patterns. This makes the March data series (to come out in April) very important for markets as we will get a more realistic sense of how the US economy.
I still see the Fed tapering by $10 billion a month, which is until they see the March data and get a sense that the economy could really be headed lower.
Trend conditions remain unfavourable for the trade, with the MACD above zero on the daily chart, while it also continues to pull away from the signal line. With this in mind, positions should be kept small, until a more bearish trend develops.
* EUR/USD is trading at 1.3705 at the time of writing