EURUSD With a False Breakdown
01 February 2022
The Euro has climbed strongly over the last two days, pushing toward the 1.13 level as the recent breakdown below the critical support of 1.12 now looks like a bearish trap.
That behavior usually leads to a nice rally as stop-losses of long positions have been killed, and the market tends to inflict maximum pain for everyone.
Earlier in the day, German retail sales fell sharply in December, dropping to -5.5% month-on-month, despite the holiday shopping season. As a result, the yearly gauge decelerated from 0.5% to 0.0%.
Additionally, the German manufacturing PMI for January fell from 60.5 to 59.8, while the manufacturing sector weakened slightly in the eurozone, printing 58.7, below 59 in the latest PMI.
Furthermore, German unemployment change improved from -29,000 to -48,000. At the same time, the unemployment rate ticked lower a notch to 5.1%.
From the technical perspective, as long as the EURUSD pair trades above 1.12, the short-term outlook seems bullish, targeting the 1.13 level, where the 50-day moving average is converged with the previous short-term uptrend line.
If the Euro jumps above that level, we might see a strong rally toward January highs in the 1.1480 region.
Alternatively, should the euro return below 1.12, it could continue toward the actual cycle lows near 1.1130.