By: Christopher Lewis
The EUR/USD pair has been falling over the past several sessions as the European Central Bank head Mario Draghi has been very dovish in recent comments. Mr. Draghi made several comments about a weakening outlook for economic growth in the European Union. The pair has also been very much influenced by the recent minutes of the last Federal Reserve meeting that suggested that quantitative easing wasn’t nearly as close to being a reality as many traders had either thought or hoped.
The pair is one of the most followed, and the Dollar on the whole is measured by the market. The Dollar is enjoying a bit of a strengthening overall, and the Euro is the brunt of bearishness by traders. The EU has seen spreads between Spanish and German bonds widen, and the Dutch are now feeling the sting as it becomes more expensive to insure their debt – a country that is well respected for their economic strength. French rates are rising, and the Portuguese still can’t come to the markets without help.
1.30 looms large
The 1.30 level below is key for me. I believe that the level will be the deciding factor for the next leg in this market. Overall, this pair looks weak, and the bounce on a poor Non-Farm Payroll report was hardly convincing after the massive fall. After all, the 1.31 level held it down and one would have assumed this pair would have seriously spiked.
The job situation in the United States could very well be slowing, but overall the US is doing better than Europe, and this is ultimately what matters in the end. This pair will continue to have to worry about the bond markets in various European countries, and as a result there is always going to be a certain amount of headline risks.
I am selling this pair on rallies, as they show weakness. Fading rallies should continue to be a viable trading strategy, and will only be negated if and when the pair closes above the 1.35 level. The breaking down below the 1.30 level on a daily close also has me selling for a move down to the 1.26 handle – the lows from the last serious plunge in this market.