EUR/USD trying to rally through the 1.28 level on Monday, but failed in the end. This has been an area that has been causing quite a bit of headaches for the buyers, and it looks like it is said to do so going forward.
Looking at this chart, it does appear that the next 50 or so pips will be very important to the next leg of this trade. If we do manage to break the top of the shooting star from Monday, it’s very likely that we would continue higher. However, this would only be a move back into consolidation, as opposed to some type of large rally.
With this in mind, we are still bearish of this pair for the moment. We could see a bit of a “risk on rally” continue in the markets in general, but the fact that the Euro could hang onto the gains that it had achieved earlier in the day makes is very suspicious of Euro strength in the long run. After all, the stock markets around the world rallied extensively. As a matter fact, the Dow Jones Industrial Average gained almost 200 points at the end of the session. In a situation like this, the Euro almost always explodes to the upside against the Dollar. The fact that it didn’t certainly suggests that something isn’t quite right.
Looking forward, this pair is still going to have more risk to the downside than the upside. After all, the debt crisis in Europe is far from being fixed, and there is always some type of headline risk waiting around the corner. On top of that, one has to think that the congressional leaders in the United States aren’t exactly ready to sign a fiscal deal either, and as such bad headlines could come across that think this pair any moment.
With this in mind, we are much more comfortable selling this pair than buying it. However, if we do manage to break above the shooting star from the Monday session, we would have to admit that there is at least a chance that we could see some type of momentum shift for the short-term. We would need to see a daily close above that in order to be impressed out, and that is the big difference. After all, the Monday session Saul a breakthrough of the 1.28 resistance level, only to fail. Because of this we will be very cautious about buying this pair and wait until we get a daily close to convince us.
Written by FX Empire