The EUR/USD pair fell again during the session on Monday, as we currently hover above the 1.27 handle. This level is the bottom of significant support from the previous consolidation area. We had a significant high back in June at the 1.27 level before falling precipitously. It is this resistance that is now acting as support, and as such we think a lot will be learned about the Euro at this level.
If we can get below the 1.27 level for the daily close, this market should fall to the 1.25 level with relative ease. If that level gives way, we could see a move back down to the 1.20 handle before it’s all said and done. Remember, there are plenty of reasons to short the Euro right now, and it is a bit of a paradox but the United States dollar should continue to gain in value as long as the Americans cannot get their fiscal house in order.
The Dollar will rise over time even when the problem is US centric as the U.S. Treasury market suddenly becomes a safe haven. As long as that’s the case, we will find it very difficult to short the dollar for anything more than a quick trade.
The Euro suffers from having such situations as Greece and its economic problems, the Spanish bond market, and civil unrest in several different countries. With this being said, why would you want to own the Euro?
As far as the upside is concerned, we would have to close well above the 1.28 level in order to be convinced that we would be reentering the previous consolidation area. This doesn’t seem likely at this point time, but it is certainly possible if that happens, we would expect a return to the 1.3150 level, and also would expect that it would coincide with some type of announcement out of Europe. Presently, there doesn’t seem to be much in the way of planning or working on the European debt situation. We have simply “drifted” through the crisis. Sooner or later, the markets will make the Europeans pay, and progress will have to be made. Until then, we can only play the charts.
Written by FX Empire