By: Christopher Lewis
The EUR/USD pair has been rising over the last several sessions as the world seemingly thought the financial burdens were over. Of course this isn’t the case, but it is hard to notice lately as it seems the pair can always find some kind of reason to gain ground over time.
The Federal Reserve Chairman, Ben Bernanke, had his semi-annual congressional meeting during the Wednesday session, and gave no indication of further easing being necessary. The market seems to have been waiting on more easing, and the reaction was rather strong and possibly a surprise to many others. The fall during the session was very strong and seemingly accelerated as he spoke.
The European Central Bank also announced the results of the LTRO, and as they came in line, the reaction was muted at best. However, the as the ECB gave no hint or suggestion of another LTRO, the market got spooked and the selling of the Euro began.
Confluence of events
Along with the issues mentioned above, the technical analysis suggested that the pair was about to fall anyway. The 50% Fibonacci retracement level was just above the price at the open, and the market will have had several sellers enter at that point. The area also features the 200 day EMA, and this would also attract many trend traders as well. The 1.35 level is a major round number also, so the pair found itself running into a massive resistance point.
.png "EUR/USD Daily 3/1/12")
The price action was very negative, and it looks like the pair is ready to continue the downtrend in the meantime. The biggest issue with trading this pair is that it seems to be like a cat – it has 9 lives at times. Because of this, I fully expect a downward trend, but I equally expect choppiness as well. The pair is simply schizophrenic at times.
I am selling on a break of the Wednesday lows, and would also be willing to sell short-term rallies on weakness as long as we are under the 1.35 level. It will take a daily close above that mark for me to get bullish of this market going forward.