By: Christopher Lewis
EUR/USD got a boost for the Thursday session as the ECB didn’t mention anything related to rates, and also talked about liquidity measures to shore up the banking system in that area. The Italians and Spanish also managed to attract some interest in buying their bonds as well, and this shows that perhaps the banks in Europe are starting to buy these bonds with the cheap money that the European Central Bank has given them.
However, there are still record amounts of Euros being stashed at the ECB overnight, and this signals that there could be real black holes in the balance sheets of the banks. Mr. Draghi said that the banks that were buying bonds weren’t the ones depositing at the central bank, but if they aren’t, then what are these other banks hiding that they won’t even lend to each other? This suggests that the idea of a credit crunch being avoided might be a bit premature.
The Dollar on the other hand, got a bit of bad news as December retail sales came in much weaker than expected at 0.1%. In fact, ex-autos the number was actually negative, and this was during the Christmas shopping season! Not good news for an economy that relies on consumption for 70% of GDP. However, the data out of the US has been improving on the whole lately, and this should be kept in mind.
A Bounce to Sell
The likelihood of the EUR/USD suddenly being a pair you want to buy for any length of time is a remote one at best. Two successful auctions of debt in an area that has massive amounts coming to market in the near term is hardly a reason to see a change in the attitude of the market overall. The pair is in a downtrend, and this hasn’t changed over the last 24 hours.
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The 1.30 level was the epicenter of massive support on the way down, and for it to act as resistance would be expected. (In fact, it is one of the very basic concepts of technical analysis.) Because of this, I am presently looking to sell this pair on signs of weakness. The idea of buying the Euro hasn’t even been a thought, and as long as selling works over the longer-term, that is all I will do. I am looking for shooting stars on the 4 hour and daily charts in order to sell weakness. Larger red candles can also work in the right area. The resistance area should start about 1.29, and run all the way up to the 1.31 handle.