EUR/USD technical rally rolling over as medium term bears threaten to take hold

The pressure is mounting even more this week as Friday’s supposed deadline for Greece to repay €300m to the IMF comes ever closer into view. The problem is that the negotiations over the release of a final €7.2bn tranche of bailout funds continue to rumble on with no sign of a deal. However, the purchasing managers indexes from China today have been supportive for market sentiment. The official data ticked higher to 50.2 which was in line with expectations and just above the 50.1 from last month, whilst the HSBC Manufacturing PMI improved to 49.2 (from 49.1). The continued sluggish PMI data though will have the market speculating over further stimulus from the PBOC. Although equities in Shanghai have been up strongly overnight, there has been little sign of much positivity in other Asian markets, with the Nikkei all but flat. European markets have been reasonably positive at the open though. A near term sell signal has been posted. A bearish engulfing candle is a negative signal which suggests that Friday’s high at 7070 is now a key resistance near term. There has not been too much of a trend of late with which to reverse but still there is potential now for a slide back towards the 6930 support. I would though be mindful that there have been a number of mixed signals of late and the early rebound today suggests that the sellers are not in entire control. The daily momentum indicators are all decidedly neutral near term and there is little really to get too worried about yet. The intraday hourly chart shows a slightly bearish bias also without really being too negative. I think it is more that the high at 7070 is now in place and that there will be a period of mixed trading continuing. The loss of the reaction low at 6930 would be the signal to be interested in from the point of view of a confirmation of a change of near term outlook.