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EUR/USD Trades Down to 1.37 on Deteriorating Economic Sentiment

Germany's ZEW Economic Sentiment Index for May deteriorated to 33.1 from a 43.2 in April. This is the lowest reading since January 2013 when it was 31.5. Economists' forecasts were around 41.3


After a good stretch in 2013, the index peaked in Dec. 2013 at 62.0, and has been declining throughout 2014. A reading above 0 shows optimism, so the sentiment is still positive, but the declining trend is alarming.

The ZEW Economic Sentiment for the Eurozone fell from 61.2 in April to 55.2 in May. Economists had forecast an improvement to around 63.5. 



After starting the week in a narrow consolidation, EUR/USD fell sharply after the poor sentiment data, falling from an overnight high around 1.3770 to about 1.37 as traders get ready for the US session. 

(eurusd 1h chart, 5/13)

Support, Double Top:
The current decline extends the possible start of a bearish trend after EUR/USD failed to break 1.40 and fell on the back of a dovish ECB.

Looking at the daily chart, we see that the current decline goes against a prevailing uptrend, but there is a double top that would be complete if price falls below 1.3670.

If there is a pullback during the US session, a bearish market should watch for resistance around 1.3750-60 area. 

Then this week's high around 1.3780 up to 1.38 should provide some resistance if the market is still bearish.

A break above 1.38 however would suggest failure to develop a bearish market, especially if the market had failed to break below 1.37. In this scenario, the 1.39 and 1.40 levels are back in the scope.

Double-top Scenario:
As noted before the market is bullish-neutral in the 4H chart, until a break below 1.3670, in which case it is neutral-bearish with a double top, and would open up the 1.3475-1.35 area (2014-lows).

Be aware of a possible false breakdown though. Look at a subsequent pullback for more confirmation. One that fizzles below 1.39 for example should give confidence for EUR-bears to continue shorting EUR/USD because the double top would have been respected.