EUR/USD bounces near 50-DMA; 1.0820 still on the table

Currently, EUR/USD is trading at 1.0686, down -0.30% or (32)-pips on the day, having posted a daily high at 1.0740 and low at 1.0620.

During the NA trading session, the Euro vs. American dollar found a much-needed oxygen mask to slow down the selling pressure as the pair was moving lower towards the 1.0600 psychological mark. Furthermore, Germany's economy seems to show decent vital signs as inflation clocked positive readings (ECB inflation target at 2pc) in industrial regions such as Bavaria and Brandenburg at 1.7%, Saxony at 2.3%, Hense at 2.4% and North Rhine-Westfalen at 2.1%.

Historical data available for traders and investors indicates during January that EUR/USD pair had the best trading day at +1.13% (Jan.5) or 119-pips, and the worst at -0.80% (Jan.17) or (84)-pips.

Eurozone 'must' break-up

Szu Ping Chan, reporter at The Telegraph, notes, "Jürgen Stark, who served on the ECB’s executive board during the financial crisis, said it was time to “think the unthinkable” and work towards a “reset” of Europe that pulled power away from Brussels. The former vice-president of Germany’s Bundesbank said the creation of a two-speed Eurozone, with France and Germany at its core, would help to ensure the smaller bloc’s survival. “We have to think the unthinkable. And it is already unthinkable to think about the restart of Europe, which means we have to be creative. But in order to be creative, you have to destruct [sic] something.”

The report continues, "Jens Weidmann, the current Bundesbank president, launched a fresh attack on the ECB’s quantitative easing programme last week as he warned that government bond purchases risked turning central banks into “prisoners of markets or fiscal policy”. Mr Stark also dismissed the idea that Berlin would be the first to leave the bloc. “The euro will not fail because of Germany,” he said."

Technical levels to watch

Valeria Bednarik, Chief Analyst at FXStreet, notes, "The week started with the dollar gapping lower across the FX board, undermined by a spike of risk aversion following the latest US President decision to ban immigration for some certain Muslim countries. Dollar's decline, however, was moderated, and the greenback re-surged following London's opening. In the EU, sentiment improved in January as the economic sentiment indicator increased to 108.2 from previous 107.8, beating expectations of 107.9." 

She further writes, "The subcomponents showed a large uptick in industrial confidence, whilst consumers' sentiment posted modest improve, from -4.9 to .4.7. The EUR/USD pair, however, plunged on comments from ECB's Nowotny, who said that the ECB will probably review its monetary policy in June, but won't discuss tapering.  Disappointing German preliminary inflation figures for January weighed further on the common currency, sending the pair down to 1.0619, as harmonized YoY CPI fell by 0.8%."

In terms of technical levels, upside barriers are aligned at 1.0740 (today's high), then at 1.0820 (100-DMA) and above that at 1.1010 (200-SMA). While supports are aligned at 1.0585 (50-DMA), later at 1.0453 (low Jan.11) and below that at 1.0339 (low Jan.1). On the other hand, Stochastic Oscillator (5,3,3) seems to head south with a mild bullish divergence. Therefore, there is evidence to expect further dollar gains in the near term, but a 'euro surprise' is not ruled out. 

On the long-term view, the pair recovered 70-pips from today's low at 1.0620, as of writing, trading above 1.0640 (short-term 23.6% Fib), then the next logical resistance 1.0820 (short-term 38.2%Fib) makes a perfect target for risk-on sentiment and above that at 1.0977 (short-term 50.0% Fib). To the downside, 1.0585 becomes the critical support if the euro wants to keep pushing up the current bullish momentum.

A break below this level, would open doors and attract massive short-sellers towards parity. However, the 1.0070 handle figures as the shared currency last stand, those couple pips away from the round mark make the difference between an all-time low-bottom vs. the 'infamous' parity. 

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