By: Christopher Lewis
The 1.35 level in the EUR/USD has been a sort of “line in the sand” for Euro bulls that continually come in at this level to support this pair. The pair keeps finding itself under serious pressure, but the 1.35 level continues to fight. This area is rapidly becoming very important and the entirety of the markets seems to understand this.
The level has been broken as of Wednesday, but is putting up a fight once again. It cannot help that the Italians, Spanish, Portuguese, French, and Dutch are suddenly finding that they can borrow, but at higher rates than last week. The fears of contagion shouldn’t be worrying anymore, it’s already here.
Because of this, the breaking of 1.35 seems to be all but a given. There is a natural desire for Americans to buy the Euro for reasons that escape logic, so there has been a bounce during most US afternoons. But as soon as the rest of the world takes over, it is back to selling the Euro. (This is likely due to the idea that Wall Street has about a weak Dollar being good for the economy somehow.)
The truth is there is no easy fix for the EU and its problems. The debt issues are so intertwined in the banking system and between countries that it is almost certain to continue for quite some time. Europe seems to be at least heading into a recession. Because of this, the EUR/USD is a short only pair for the time being.
The breaking of 1.35 level will be confirmed on the day that the market finally closes below it on a daily chart. Until then, look for more whippiness in this market as the headlines come out, and the perma-bulls continue to buy. The reality is that this pair has no business being this high, and one has to wonder if central banks aren’t involved in keeping this rate up. (There are plenty of rumors of Asian CBs buying.)
With this in mind, we need to see a sub-1.35 close to get completely bearish. Otherwise, we could be looking at more chop and consolidation for some time.
