Resumed strong-dollar trend facing major uncertainty

In our most recent EUR/USD article, posted just before this month's release of Non-farm Payrolls jobs data on January 8th, we forecasted the extent and duration of an anticpated EUR/USD upward bounce off support, affirming that it would be just a temporary fade against the longer-term downward trend, and an ideal re-entry point, once oscillators became overbought, to resume the longer-term trend of U.S. dollar strength .

As you can see in the daily chart below, over the past couple weeks, this indeed happened, with the price now at a lower low (1.4120)  after crashing through the 200 day moving average, the major counterbalanced horizontal support near 1.42, and the lower Bollinger Band. We originally caught this entire trend of U.S. dollar strength from its infancy early back in December, riding on the back of USD/CHF first, and then hopping over to EUR/USD.

U.S. dollar strength will most likely still continue in the near term, but there are early indications it may be losing steam, possibly reverting back into a trading range.

Yesterday, U.S. stocks gave up most of their gains since November after President Obama proposed new limits on the amount and type of risk large financial institutions can undertake. The S&P 500 dropped over 2% on the highest volume since November 2008, a very bearish warning sign. Also, economic reports have been conflicting, and not to forget that January's U.S. jobs data was disapointing.

We will need to wait a little longer to see how the markets further digest these developments before establishing a more definitive conclusion on the future direction of the U.S. dollar relative to the euro. We will keep you updated.