EUR/USD is unwinding mildly from oversold conditions, driven by shortcovering as the market adjusts to a new bearish paradigm, following the break beneath that all-important psychological level at 1.3000.
Our cycle analysis successfully signalled increased volatility within the first two weeks of December across "risk" proxies, including the equity and commodity markets. Expect some respite ahead of the holiday period.
Watch for a sustained close beneath 1.3000 (psychological level) to resume EUR/USD’s multi-month downtrend into 1.2870 (2011 major low).
Near-term resistance can be found at 1.3215 and potentially even 1.3550 (02 Dec high). Any rebound into these levels is likely to be short-lived.
Inversely, the USD Index has extended its recovery higher to new 11-month highs, (a move worth over 10% from the summer 2010 lows).
Speculative (net long) liquidity flows is strengthening once again and will continue to help resume the USD’s major bull-run from its historic oversold extremes (momentum, sentiment and liquidity).