In yesterday’s article, we looked at the recent surge in the Euro while asking the key question: Are Euro Bears Done? After opening this week in the midst of its weakest run of price action since November of last year, EUR/USD carried the potential for a deeper bearish move as 2017 gains were further digested. When the ECB extended QE at their rate decision in October, the primary bullish factor that was driving the single currency higher was, in essence, put on the back shelf. And after the Euro had spent most of the year rallying while the U.S. Dollar spent most of the year selling-off, it made sense to look for some of that move to give back as we headed towards year-end.

But once this week opened, matters began to change. EUR/USD had caught a quick move of strength on Thursday of last week around the reports of US tax cuts being delayed, potentially as far out as 2019. But yesterday saw a set of red-hot GDP prints come out of Europe, led by Germany’s .8% quarterly GDP growth to drive the Euro-Zone as a whole up to .6% for Q3. This puts Europe on pace to grow faster than the United States, and that’s an economy that’s already seen four rate hikes in the last two years, with an almost certain fifth on track for the December FOMC meeting. The ECB, meanwhile, haven’t yet touched tighter policy, and as we heard at that last rate decision – they aren’t planning to lift rates until well into the future, inferred to mean 2019 at the earliest. So this continued improvement in European data highlights a heavy case of divergence that we’ve seen in Central Bank policy between the Fed and the ECB. So, while the Fed is probably going to be the next to hike, longer-term, the ECB may have some catching up to do if our current growth story continues unabated.

This led to a strong top-side pop in the Euro on Tuesday. This move shot prices above a key zone of prior support that had started to show-up as resistance (1.1685-1.1736), going on to test the group of October swing-highs in the pair. The surge continued through Tuesday and into Wednesday, at which point sellers began to take over. This left a shooting star formation on the daily chart, and this can often show up around bearish reversal setups, highlighting how a previous day’s worth of bullish activities was soundly faded out of the market, and then some, as sellers responded to resistance.

EUR/USD Daily: Shooting Star Shows Near October Resistance