By: Christopher Lewis
EUR/USD has been the bane of many traders existence lately. The pair has been headline driven, and while this isn’t necessarily a rarity, the pair has been especially susceptible to them lately. The debt crisis in Europe is far from over, and although we saw the markets breathe a sigh of relief after the Greeks were given the approval for a second bailout, the Portuguese are now starting to become an issue as their interest rates are spiking to unsustainable levels.
The recent price action has been fairly tight, and this is mainly because of the fact that we are sitting right at a major support level in the neighborhood of the 1.30 handle. The reasons I use the term “neighborhood” is that the support is actually 200 pips thick to me, and I see it as actually being a support level from 1.29 to 1.31 as the entire area has resisted the bears. This may seem like a massive area for many traders, but in the big scheme of things, 200 pips is nothing. These support and resistance areas are often wide when they are very important levels. This is one of those in my opinion.
Euro heading south finally?
Many of the analysts around the world expect the Euro to finally break down somewhat by the end of the year. This currency has been amazingly resilient up into this point and as such many accounts have suffered. One has to think that sooner or later, we will see a breakdown if the problems continue. The real trouble is going to continue as long as Spain, Portugal, and others are paying higher rates in the bond markets. The market will likely not react well to another country having to be bailed out. Also, the ECB head Mario Draghi is seen as someone who wants a weaker Euro, something that the market isn’t used to. I think he will find a way to get his wish sooner or later.
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On a daily close below the 1.29 level, I am selling as I think this signals the next leg down, with 1.25 being a stop. If the pair bounces, I expect to see 1.3250 and 1.35 both offer resistance, and I am selling on a bearish candlestick at either of those levels.