FX.co ★ Analytical review of EUR/USD with a forecast for Monday July 19, 2010

The European currency rose to new highs again and reached the level of the 30th figure on Friday’s deals, as the worries about the US economy recovery still ease the US dollar positions.

On the European session, the pair attempted to slide slightly, having fixated the daily low at 1.2889 area. Although thereafter after publication of US weak fundamental reports, EUR/USD refreshed its growth, which caused a local high at 1.3006.

By the end of the trading session, investors began to fix long positions on the euro that led to the fall.

The trading day closed in favor of the greenback, which strengthened against the European currency by 17 points. The trading volatility amounted to 116 points.

Fundamental analysis:
Italy again registered the external trade deficit. According to the Italian Statistical office Istat, the external trade deficit totaled 1.9 bln. euro in May against the positive balance of 1.1 bln. euro in May 2009.

Export increased by 17% in May compared to the previous year and import soared by 31.1%.

The Eurozone also recorded the external trade deficit in May. As the EU Statistical agency Eurostat said, the external trade total deficit was 3.4 bln. euro in May versus a positive balance in April. The revised April surplus was 0.3 bln. euro against 1.8 bln. euro initially reported.

Export rose by 23% in May y-o-y and amounted to 122.6 bln. euro, import increased by 30% y-o-y, to 126.0 bln. euro.

Concerning the US fundamental data, it should be mentioned that the consumer price index slightly went down in June, but the core inflation remained unchanged.

According to reports, the US consumer price index seasonally adj. dropped by 0.1%. The core consumer price index edged up by 0.2% in June.

Economists were expecting the consumer price index to remain without changes in June and the core index to go up by 0.1%.

Technical analysis:
The pair hit a new local high around the 30th figure bottom, which is a key resistance area now.

The trading keeps on in the upward price channel, formed from July 13. The lower limit of this channel lies at the lows from July 13 and 15 and comes in line with today’s low set during the Asian deals.

In case of the further falling, the pair will be supported by 1.2879 area, after the breach of which it will go down to 1.2814 area and then to 1.2739.

For the growth EUR/USD is necessary to raise above 1.2353 and to break out the level of 1.3008, which will open the way to 1.3094.

The 50-day exponential moving average placed at 1.2879 area also supports the euro.

Bollinger bands are parallel each other, however they are gradually turning downwards speaking for a short-term decline of the pair. The trading is held in the lower area of the bands and the middle band placed at 1.2926 area is the resistance.

MACD indicator is around zero mark, which clearly points out either the pair drop or a sideways movement.

Today’s recommendations:
Support levels: 1.2879, 1.2814, 1.2739.
Resistance levels: 1.2953, 1.3005, 1.3094.

Today it is advisable to buy the pair at 1-hour timeframe closing above the level of 1.2928 with a target - T/P 1.3004 and S/L 1.2890.
It is possible to sell at the closing of 1-hour timeframe below 1.2879 with a target – T/P 1.2783 and S/L 1.2918.