The Euro appreciated against the Dollar on Tuesday as U.S. equities posted large gains in reaction to Bernanke’s Congressional testimony. However, the EUR/USD failed to breach our 1st tier downtrend line once again. Furthermore, the EUR/USD still faces February 20 highs and the highly psychological 1.30 area. Therefore, investors are still skeptical concerning the stability of the American economy. The EU released a plethora of economic data on Tuesday. While the German Ifo Business Climate was worse than expected, the EU’s Current Account came in strong. However, it remains to be seen if the better than expected Current Account balance was more a result of rising exports or declining imports. While rising exports could indicate an upturn in global demand and consumption, dwindling imports would forewarn of an increasingly cash-strapped consumer. Since Germany is the largest economy of the EU, the fact business managers are increasingly pessimistic is a discouraging sign. Therefore, a substantial rate cut at the ECB’s next meeting seems imminent. This detracts from the attractiveness of the long rate payoff of the EUR/USD. Even though the EUR/USD has stabilized above February lows, the currency pair still faces multiple downtrend lines to the upside. If the S&P futures should fall below 2008 lows, then the EUR/USD will likely follow suit. Consequently, we maintain our negative outlook on the EUR/USD. Fundamentally, we find support of 1.2806 with 2nd tier and bottom-end supports resting at 1.2758 and 1.2690, respectively. To the topside, we see resistances of 1.2836, 1.2883, 1.2946, and 1.3003. The EUR/USD is currently exchanging at 1.2840.
