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EUR/USD Drops Below 1.27 Ahead of ECB and NFP

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The euro has fallen for a fifth day versus the dollar, after finding strong resistance from the key level of 1.2900 (S1), ahead of some significant event out of the Eurozone and US. This week’s data is likely to have a significant impact on the direction of the EURUSD pair, including the Eurozone Consumer Confidence and German Unemployment Rate tomorrow. Furthermore, the US ISM Manufacturing PMI on Wednesday along with the two big events of the month, the ECB Interest Rate Decision and the US Non-farm Payrolls, Thursday and Friday respectively.

With this in mind, the EURUSD is still looking bearish, especially when you also consider the response to the massive resistance levels, around the 1.2900 barrier. In addition, the 50-period simple moving average (SMA) remains below the 200-period SMA adding to the bearish attitude of the pair. Furthermore, both of the oscillators following their downward path, confirming the validity of the downtrend.

All in all, the daily chart as well as the weekly chart suggests we could see some further dollar strength. Therefore, a clear break below the 1.2650 barrier, I would expect the sellers to drive the battle lower, towards the key resistance and psychological level of 1.2600. From there, if the selling pressure continues then I would expect extension towards the 1.2550 level.

The move from 1.3965 has been a very aggressive move lower so far, without any significant retracements along the way. On a couple of occasions we have seen a pause in the rally, by a flag and pennant formations on the 4-hour chart, but not a serious correction. Therefore, I think a serious correction is on the cards very soon, making the next two resistance levels, 1.2650 and 1.2600, very important. If we do, then we could see the pair testing the descending trend line at the end of this week.

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