By: Christopher Lewis
EUR/USD fell on Monday as traders continue to ebb back and forth in their “risk appetite” as far as Europe goes. Quite frankly, I know of several traders that can’t be bothered with the Euro presently and all of the volatility. However, as it is such an important financial instrument, they still have to at least pay attention to what is going on in this pair.
The bond markets continue to be of paramount concern in the EU. The markets are somewhat relieved that the Italian bonds are starting to come down in yield, but the Portuguese ones are starting to get treated very much like Greek ones were just a few months ago. (Portuguese debt is currently rate as “junk”.) To give you an idea of just how bad things have gotten with some of their debt, the 10 year in Portugal closed at roughly 17.25% on Monday.
One saving grace that the Europeans have with this is the fact that the Portuguese are covered as far as cash flow until the end of the year. However, be prepared for this to become more and more important as time goes by. I don’t bring this up to alarm you, but to let you know that the bond markets are still decidedly bearish in the EU, but the pressure has simply shifted – so don’t be fooled.
Fibonacci Levels Ahead
The chart shows a selloff for Monday, but the end of the session saw American traders buying the Euro as per usual. The resulting candle isn’t quite a hammer, but it is close. The meaning would be the same – which the former resistance at the 1.31 level is now trying to act as support, a basic tenant of technical analysis.
The road going forward looks up for the short-term, but you can see the 100 day EMA (red) is just above, and the 200 day EMA (blue) is close to the 1.35 level. The 1.35 is also a place I have drawn a yellow box to highlight that the 50% Fibonacci retrace is in that neighborhood as well. It is because of the supportive hammer that I think we are going to aim for the yellow area. In the short-term, this pair probably rises. However, this is a countertrend trade, and I prefer to go with the overall trend. I believe that a quick trade from the bullish side can be had, but the real money will be if we have a failure between 1.34 and 1.35 or so.
