By: Christopher Lewis
EUR/USD fell again for the Wednesday session as the European issues seemingly are going to be with the market for quite some time. The bears can come up with a seemingly endless amount of reasons to sell this pair, and the headlines certainly seem to back them up in that line of thinking.
Thursday and Friday will see bond auctions in both Italy and Spain. Both of these bond markets are very important to the health of the Euro presently, and both provide potential headlines that will move this pair. The exodus of capital out of European bond markets is a serious problem at the moment for the European Union, and is one of the biggest ways to gauge how the EU is getting along.
With the EU undoubtedly going into recession on the whole, and the US economy showing signs of life, the pair will continue to favor the Dollar on the whole. Also, the Dollar still enjoys a good amount of faith when safety and a return of capital becomes more important than a return on capital as well. As long as the Dollar is considered the “safe trade”, in this kind of environment it will continue to thrive over the long term. The Euro simply has far too many complexities at the moment to consider buying.
Technical Bounce?
Although the pair fell overall during the session, the shape of the candle looks a bit like a hammer. The hammer would be formed from 1.2650 to about the 1.27 level. The 1.26 level below is massive support, and as a result it looks like we could be in for a bit of a bounce at this level.
.png "EUR/USD Daily 1/12/12")
Under normal circumstances, you could try to play it for the bounce from the long side for a quick profit. However, the Euro is hurting due to political as well as economic reasons, and the headline risks are far too numerous to even think about owning the Euro. Presently, I see the 1.3050 level as massive resistance, and will be looking for selling opportunities at every round number up until we break above that level. Selling the rallies has been very profitable, and there is no reason to think that strategy will need to be changed.