EUR/USD Daily Outlook May 10, 2012

EUR/USD fell again on Wednesday as the problems in the region continue to make headlines. The idea that there is a large amount of Europeans expressing through the ballot box that they are fed up with the austerity measures certainly weighs upon the market and sentiment regarding not only the Euro, but risk assets everywhere.

However, one only has to think about the average Greek, Spaniard, or Italian in this situation. By allowing the austerity measures to take hold, you cannot help but think you are bowing to Berlin. No matter what people in Brussels may want to believe, there is still such a thing as national pride, and as long as that is true – Europe will remain a region of countries, not the main country in the region.

To think that the average Greek is willing to put up with 20-25% unemployment for much longer is sheer fallacy. Should the Greek government have borrowed so much? Probably not, but at this point what is done is done, and that can’t be changed. In essence, this problem would have been over a long time ago if the bondholders simply took their losses, but they have refused to. In electing such an anti-austerity selection, Greeks have just informed that bondholders and everyone else that they are going to be taking losses, and soon. In my estimation, we are seeing the very early part of the end of the Euro. (It won’t be tomorrow, but there has to be serious thought about this whole experiment.)

1.26 is calling

The breakdown looks like we are finally starting to move. The 1.26 level is the last major low, and I think this is where we will see serious support in the future. However, it should be said this pair has the magical ability to bounce from time to time on hope and other times for no real reason – yes, I am looking at you People’s Bank of China – so rallies will present themselves in order to allow me to add to my short position. It isn’t until we close above 1.33 that I would even entertain a long position, mainly because of the previous triangle. I will fade any positive movement in this pair.