The worldwide perspective about investing in risky assets seems to have changed. We observed that in December the European single currency has gained 2.0% in favor of the US dollar. It didn’t matter for the investors that good economic data were published for the United States and Fed could use them as an argument to taper the Quantitative Easing program. From this results that we are back to risk aversion and risk appetite.
The United States is the world largest economy. If good economic data is published for the country, investors will think that the world economy will follow. If bad economic data is released for the US then investors will take refuge in American assets because, the world largest economy cannot default.
So how do you think that such logic will influence the EURUSD? If the US economic indicators will be published above expectation then investors would like to put their money in riskier assets, like the EUR, thus this currency will gain. If bad economic data will be released then investors would like to get their money back into a safe heaven, which is the US dollar, so it will go up.
From the technical point of view, on a one month time period, the EURUSD trend is up. The price even broke the rejection of the channel and rallied all the way back to 1.3800. Around this level it has encounter a very important resistance area, which we talked about in our past analysis. It is a very interesting confluence zone which rejected the price back in late October.
At this point would be pretty hard to decide whether it will continue its rally or it will have another bounce. There are some bearish signals given by the overbought RSI (14 periods) but they aren’t enough to take a position, especially because it signals a counter trend move. From our opinion the bearish signal would be confirmed by a drop back under 1.3750 and the target for the drop would be around 1.3650.
A break above 1.3830, the latest high, would signal that the buyers still have the power to move prices even higher and we would look to buy the dips. Between 1.3750 and 1.3830 it is a gray area in which the price might play for a while before deciding its direction.
Keep your eyes also on the economic calendar. Today the sky it is clear, but tomorrow it might get a little bit clouded with the speech of Mario Draghi and the US Core Retail/Retail Sales and Unemployment Claims.