EUR/USD Daily Outlook Jan. 4, 2012

By: Christopher Lewis

EUR/USD rose during the Tuesday session as traders returned from the holidays for the first “real” day or trading. The volumes are probably still a bit on the light side, as the Non-Farm Payroll numbers will be coming out on Friday. However, the move was strong, and the day ended near the top of the range for the session.

The session didn’t manage to break above the 1.3050 area though, at least not in any meaningful way. The area is the site of the most recent plunge downward, and starts the resistance area in the pair going forward. The markets were generally positive for the session, and the Euro got a bit of a bid based upon that reflection and the bond yields in several European countries falling during trading on Tuesday. However, it would be a mistake to think that something has suddenly changed in the overall picture when it comes to the European debt markets.

European banks are borrowing money at a rate just above free, and hording cash presently. The European banks are doing the same thing that the American ones did after the original financial crisis – taking care of their own balance sheets instead of what the central bank was hoping for. The ideas was to loan out the funds to banks for next to nothing, and have them in turn buy the debt of such countries as Italy as the spread in yields would continue to recapitalize banks. However, the banks are simply parking the money at the ECB in overnight accounts as a whole. Because of this, the banks may be better off, but the debt issues are far from over.

Technicals Going Forward

The EUR/USD chart does look like it wants to try and bounce, but the volumes are light everywhere at the moment, and moves cannot be trusted – especially countertrend ones. The 1.30 level has been an area of interest and support in this pair recently, and as a result I see this area as the most important part of the chart. The support level extends down to the 1.29 mark, and if that gives way – look out below. In the short-term, the 20 day moving average (purple line) is sitting just above the current price, and the 1.3050 level could keep a bit of a lid in this pair. If it rises from here, so be it – I would look for shorts closer to the 1.32 level, which I see a resistive as well. I am selling shooting stars, bearish engulfing candles and the like on shorter time frames, especially the 4 hour chart.