EUR/USD: Sellers about to take full control if range violated

Cycles & Levels:We’ve come to mid-week, and with it, the risk for a second consecutive close sub the 50% fib retracement on the weekly is on the rise. Finding acceptance via a weekly close below the Aug 13th swing low would definitely be a bad omen, as would validate a new downside target of 1.0845. On the daily, the selling tide within an established down-cycle won’t stop, and the focus appears to be shifting towards 1.1242 based on a 100% fib projection target. On the hourly, the break of the descending trendline led to the not so ideal scenario of transitioning int a range after two consecutive failures through 1.1420. Notice how sellers are now starting to take control of the middle point of the range? When that’s the case, a potential breakout lower looms.

Correlations & Volumes:The Italian premium vs the German is rolling over, and the same applies in the German vs US 5-year yield spread. The consolation for short-term buyers is that the values are still off breaking into new trend lows, but the dynamics are not what you’d want to see. When it comes to the latest tick activity, Tuesday’s decline came amid paltry volume, not the greatest sign for bears to be making progress on tapering volume. The close at the very lows of the day by 5pm NY with the POC trapped to the topside does nonetheless suggest that further pushes lower heading into Wednesday’s European & US sessions may be seen, especially under the current environment of USD strength described above.

Drivers & Risk events:The disappointing growth figures out of the Eurozone and Italy on Tuesday were the main obstacle, leading to renewed downward pressure. Italy won’t budge on its budget (pun intended) now that the numbers are getting gloomier. The German preliminary CPI reading came in contrast and showed a pick up in inflationary pressures, but not enough to gather enough momentum. In the next 24h, the EZ CPI reading is the main focus.