EUR/USD: Current 1.2753 (Sunday, Aug 14, 2010).
 
Outlook: Down with possibilities of sideways movement.

Please refer daily charts and not short-term charts e.g. hourly charts.

Fundamentals (Recent economic releases):
 
1) EU: Sentix Investor Confidence (August) release much better as compared to the previous release as well as the expectations.
2) EU: (Germany) Consumer Price Index releases for Month on Month and Year on Year better as compared to the previous release as well as the expectations.
3) EU: Industrial Production data less as compared to the previous release as well as the expectations.
4) EU: (Germany) GDP preliminary releases much better as compared to the previous release as well as the expectations.
5) EU: (Overall) GDP data releases much better as compared to the previous release as well as the expectations.
6) EU: Trade Balance releases better as compared to the previous release as well as the expectations.
7) EU: Germany, Europe’s largest economy expanded at the fastest pace since the country’s reunification in the second quarter. But Greece’s recession deepened. The concerns are about the lack of balance of the performance and a too wide gap there.

8) US: Monthly Budget Statement release though slightly better than the expectations but much less as compared to the previous release.
9) US: Consumer Price Index (CPI) data better than previous release.
10) US: Retail Sales releases showed less than expected data but much better than the previous releases.
11) US: Economists at Morgan Stanley reduced their estimate for third-quarter consumer spending (Consumer Spending: 70% of the US economy).
12) US: unemployment rate close to a 26-year high.

Technicals and Market perception:

1) ADX: +DI line crossed below –DI line and ADX over 33. Indicates that the downward movement may continue.
2) Ichimoku cloud: touching the upper edge of the cloud, a support level, but the momentum of the fall was too sharp to expect a support.
3) EUR/USD fell below 1.2782, Fibonacci level 1 (38.2%) retracement support of the upward movement between June 6th to August 6th Price continuously. Suggests the bearish outlook.
4) MACD line running flat for sometime crossed below the signal line.

Analysis:  EUR/USD had a very sharp fall during past week. The momentum of the fall, the technical indicators and the sentiments because of lack of balance of economic performance of member countries of EURO zone makes our outlook for the coming week bearish for EUR/USD.

We still expect some support at 1.2731 which was the support level of July 21. A break below that and also a small psychological support level of 1.2720 should take EUR/USD to the Fibonacci level 2 retracement level of the above mentioned upward movement i.e. 1.2610.

A fall below 1.2610 will make our bearish outlook stronger and a break below 1.2520 will confirm it. We would, then, be expecting a further downward movement to 1.2435 and some support there.

On the upside a resistance near 1.2940 would be critical and a break above it should make EUR/USD to go into a sideways mode with some more upward movement.

Approach:  We will be avoiding longer-term trades for this currency pair. We will be taking short-term short-selling positions for EUR/USD with upward corrections considering the support and resistance levels mentioned above.  Last weekend we had indicated that we would look forward to buying  at 1.2750 with a stop-loss at 1.2675 (-75 pips) and take-profit target of first at 1.2880 (+ 30 pips) and then 1.2980 (+230 pips).  Our order got filled but considering the strong momentum of the fall, we closed that position with a couple of pips’ loss.

We will also take short term buying positions at the support levels mentioned above with tight stop-losses (max 30 to 40 pips)and taking profit at small corrections (max 40 to 60 pips) at those support levels.

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For short term Forex trades, please refer to daily technical analysis for EUR/USD.