The EUR/USD pair got absolutely whacked during the Thursday session as the risk appetite fell off of a cliff during the trading session. The pair has been a very consistent one – simply sell when everyone starts buying again. In the end, the Euro has serious issues, and many of them are of the structural variety - meaning it is going to take serious time and effort to fix them.
The pair features the “safest” currency and the one that everyone is worried about. Because of this, there should hardly be a surprise that the rallies tend to fail. In fact, I have had some people write in and ask me “Why are you so bearish on the Euro? Certainly the US has worse problems!” I normally tell them to go ahead and buy all the Euros they want – I am more than willing to sell them.
There is one massive difference between the US and Europe: The United States doesn’t have a monetary union that is in serious threat of breaking apart. No matter how bad the debt gets in the US – nobody is questioning the existence of the Dollar. The Euro is about to explode at this rate. Also, it isn’t as if the Dollar is going to disappear because Pennsylvania, Ohio, Texas, and Missouri are looking likely to leave the union. We are comparing apples and oranges here.
Flag
Having said all of that, the 1.25 level is a crucial one in this pair in my opinion. This is mainly because I see a potential bear flag in it, and as the bottom of the flag’s body would be just above the 1.25 handle, I think that it will take a break below that level in order for me to feel comfortable with adding to my sell position again.
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Also, it should be said that the “pole” on the flag measures 1,000 pips. This would have the pair going to 1.15 roughly. This might seems like a far-fetched idea, but there are some banks that have suggested 1.15 as a target over the next couple of years, and it does look like the Europeans are going to be suffering for a few years at this rate. With that being said, 1.15 isn’t that outrageous.