The E/U has had a bullish week thus far and has closed the day above the 1.25 level. This may seem odd given the current disparity between the EZ and US economies but technical signs, noted here over the w/e, had pointed to such a possibility.

USDX weekly: the first clue came through with the weekly candle close on the USDX. This printed a bearish-reversal ‘Railway Track’ pattern under the resistance of the 90 level and suggested some potential vulnerability. This is what we have seen so far this week:

The next clue came from the bullish-reversal ‘Railway Track’ pattern that formed on the weekly E/U off major 50% fib support. This fib support being the 50% level of the 2000-2007 bull run:

E/U daily: the daily chart shows that the E/U has broken above a bear trend line from a descending trading channel that has been in place for 7 months:

E/U 4hr: the 4 hr chart shows the E/U break above the bear trend line and the hold above the 1.25 level for the time being:

E/U daily Cloud: the E/U is still below the daily Cloud for now but any move back above this region would be bullish:

USDX daily: the fate of the E/U move will come down to the next directional move on the USD index. This is delicately poised ahead of major US CPI and FOMC news and sitting right on top of a 6-week support trend line. The 90 level has proven to be considerable resistance until now and tonight’s US data/news might determine which way the index heads next. A bearish USD break below the trend line would support the E/U but a recovery for the USD would probably send the E/U scampering back to trade within its channel:

Summary: watch the USD to see how it reacts to tonight’s US CPI and FOMC: Bearish USD movement would support long E/U trades whereas USD recovery would support short E/U trades.