By: Christopher Lewis
The EUR/USD pair fell below the 1.29 level on Thursday as traders reacted to the lackluster Italian 10-year bond auctions during the session. The Italians are paying more than 7% on the 10-year notes now, and as a result the Euro sold off to the safer Dollar.
The 1.30 level started the massive support zone that has kept the Euro lifted lately. The area is actually at least 100 pips thick as a support area. The piercing of the 1.29 should have been the sign bears were waiting for, but the market looks as if there is going to be a real fight at the area. The market has seen a good sized bounce from the sub-1.29 level, and it looks as if the bulls are trying to support with all their might below.
The Asian central banks have also been buying the Euro lately, and this could be part of the support shown. The Asians have been trying to diversify their foreign reserve holdings away from the US dollar, and the Euro was the #1 destination for many of these banks. The falling Euro has been absolutely disastrous for these sovereign wealth funds.
The candle that is presently forming during early New York trading looks to be a hammer. If this holds, it could signal a bounce to come in the EUR/USD, something that wouldn’t be much of a surprise to traders as the pair seems to defy gravity at times. The direction overall is most certainly going to be down, but in forex – timing is everything. Because of this, waiting to see a daily close below the 1.29 level is probably prudent in this kind of market.
The year has actually ended up being negative for the EUR/USD pair since the fall over the last month. The pair looks extremely vulnerable going forward, and rallies will more than likely provide selling opportunities as well. The EU has made very few strides forward in tackling their debts, and the solutions all seem to be based upon heavy cuts – meaning recession. The pair is without a doubt going to be the epicenter of all trading in the near term and as a result – this pair can be used to gauge risk sentiment and help in decisions in all trading markets. When this pair falls, so do all risk related markets such as stocks, commodities, and many non-US currencies.
