The EUR/USD pair did very little during the session on Monday as you would expect, since the Canadians and Americans were both away for Labor Day celebrations. However, the pair is at an interesting support level, namely the 1.32 area. For what it’s worth, we did break down below that level but don’t see the breakdown as anything of significance yet. In fact, with the fact that it was a holiday for a large portion of the Forex markets, we will be much more impressed if the market can break down below the hammers bottom from the Friday session. Until then, we consider this market to still be within the tolerance of the support zone.
That being the case though, this pair does certainly look like it’s vulnerable at the moment. The US Dollar of course will be driven by the Federal Reserve, and what it decides to do about quantitative easing. We’re not very far from that announcement, and any signs of tapering off of quantitative easing should be positive for the US Dollar overall. This would of course in this pair much lower, probably to the 1.28 handle before the move is all said and done.
That being said though, the Europeans have recently exited a recession, so if the Federal Reserve decides not to taper off of quantitative easing, you could see this pair go straight up again. If that’s the case, expect the pair to challenge the 1.34 handle right away. In the meantime though, we could see a lot of choppiness as the market tries to position itself for the impending move. Keep in mind though, the liquidity is not back in the marketplace yet, and very well could be very thin until that decision is made. If you are placing a trade at the moment, you are simply guessing as to what the Federal Reserve will do, which is essentially gambling. You can be rest assured that most professional traders are not risking their money in the market at the moment. However, being a small retail trader, you can react to moves quickly enough in order to take advantage of a breakdown in the short term.
Written by FX Empire