EUR/USD Daily Outlook Jan. 11, 2012

By: Christopher Lewis

The EUR/USD pair rose in the earlier hours of the session on Tuesday as the markets tried to rally around the idea of another EU summit. The European Central Bank is also meeting during the week, and perhaps some traders got ahead of the meetings in the hope that some kind of solution could be forthcoming. However, the pattern continues to be a buy on hope and sell on reality type of strategy, and this latest move didn’t deviate from it.

The Euro is simply far too toxic for most traders to trust at this point. The Dollar of course will get the safety bid, and to be honest – it is finally getting a bit of a bid for simple growth. For several years, the idea has been to sell the Dollar as economic expansion globally continues, but we may actually be seeing a bit of a decoupling from that premise as the US economy is far stronger and more stable than the European one on the whole.

The rallies in this pair have all been excellent selling opportunities as the Euro simply is shrouded in indecision. The market absolutely hates the idea of uncertainty, and as long as a market is full of it, in this case the Euro, the market will typically boycott buying in any great amounts. The recent history in the European Union has been one meeting after another to talk about things that they could possibly do. In other words – there simply hasn’t been any real action.

The Charts

Looking at the charts in the EUR/USD pair, you can see an attempt to rally failed on Tuesday, but more interestingly the pair failed at the 1.28 level. The level was the bottom of the support that was so stubborn for the bears in this pair recently, and the candle shape is a shooting star. The chart simply looks bearish at this point, and a break below the range for the session would show that all of the order that came into the market to attempt a rally has now become unprofitable. At that point – one would have to think that the pair continues to fall.

I am personally selling this pair on rallies, and again if we get below the bottom of that range for the Tuesday session. This has been a classic “break down, retest and failure, and continuation” set up.