EUR/USD: Falling Back

This weekend the majority of European nations will be performing the yearly depressing act of setting their clocks back one hour to shift away from daylight savings time, and they can then begin preparing for a long, cold, dark winter. As the old saying goes, “spring forward; fall back” when it comes to the annual time changes. Coincidentally, the EUR/USD may be performing the same act as it has lost its upward momentum and appears to be falling back right along with the time.

Since the beginning of October, the EUR/USD had been staging a most improbable run to the topside despite the fact that the European Central Bank pledged their allegiance to Quantitative Easing. By looking at past history with the US and Japanese versions of QE, we can see that it usually leads to a devaluation of a currency over the long haul, so any appreciation could logically be deemed as temporary. Well that temporary state of EUR/USD bullishness may be upon us as it has broken its rising trend line and appears headed back down.

Helping massage the EUR/USD back below the rising trend line was US Consumer Price Index this morning that beat consensus expectations of 1.6% with a marginally more effective 1.7%. The Core CPI also showed a 1.7% rise for the inflationary indicator that at least puts the fear of disinflation on the back burner for another month. While these inflation figures won’t encourage the Federal Reserve to get more aggressive with their return to normal monetary policy, it doesn’t really stoke the fires of more QE either.

In response to the CPI read, the EUR/USD failed to overtake 1.27, is heading lower, and may continue to do so in the near future. If it fails to fall further right away, it may be capped by the previous trend line support transitioning to resistance near 1.2750. Supports exist near previous levels of support at 1.2640, 1.26, and 1.25, but then again, this could be the beginning of a whole new downtrend that takes us down to levels not seen since May 2012.

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