By: Christopher Lewis
EUR/USD rose during the session on Wednesday as the market celebrated the semi-decent successful bond auctions, (save Portugal) and the apparent IMF expansion of bailout money in the case of a European meltdown. Because of this, the usual “hopium” trade came back into play as traders seemingly continue to look for any reason to think bullishly in this pair.
The stock markets rose around the world, and this showed a general “risk on” attitude in the global sentiment. With this in mind, the Dollar almost always gets sold off, and the Wednesday session was no different. The Euro of course got a nice breather as it is the largest contract in the world. However, there are several reasons both fundamental and technical to be very weary of this move.
On the fundamental side, it seems that there is a structural problem with the Euro – not a temporary one. The countries involved in the common currency are far too different to be under the same monetary policy, and the recent problems highlight this significantly. Sure, it makes sense to combine the Netherlands and Germany, but Germany and Greece are two different worlds altogether.
Looking at the Charts
The EUR/USD pair rose to roughly 1.2850 during the session. It even managed to close at the very highs of the session. While this is bullish in and of itself, we are at the bottom of a downtrend presently, and this is always the first thing that makes me question a move like this. However, there are many other reasons as well.
.jpg "EUR/USD Daily 1/19/12")
The yellow box on the chart shows the recent consolidation area that we had massive support at. The most important candle in this area is the green hammer that touches the bottom of this area. This type of candle can often be thought of as “ultimate support” in an area like this. They often turn into massive resistance on the way back up.
Also, there is the matter of the obvious downtrend channel that I have on the chart as well. While it is being tested – it managed to hold at the end of the session. This probably isn’t a surprise with the resistance sitting just above it.
Adding to the bearish case is the 20 day EMA (red) that the pair is currently touching. It has held as nice resistance lately, and as a result it should attract the attention of some traders. With all of these factors coming into play, I just can’t get excited about buying this pair. However, I am more than willing to entertain selling it if we get a weak candle in the area going all the way up to 1.3050 or so.