EUR/USD had a strong session on Wednesday as the hopes of further easing out of the US continued. The ECB head Draghi also stated during a conference call during the session that the rest of the world underestimated the political will of the member states to keep the European Union and the Euro together. This for some reason was enough to start a rally. Truthfully, the market was oversold and there needed to be a bounce sooner or later anyway.
The session today sees Ben Bernanke testifying in front of Congress, and this is essentially one of the biggest allies of the Euro in this pair. The Chairman is more than likely to favor easing over any other route. In the short term, this could get a bit of a boost to this pair. I don’t feel that in the end even quantitative easing will push this pair up too much, but the short term sugar high will certainly be felt.
Eventually though, someone will ask the question, “Why are they easing again?” Someone who is even brighter will even make the observation that the last couple of times haven’t seemed to change much. It is at this point we may see the real bashing of the Euro take place.
Resistance to 1.28
I see a lot of resistance ahead though, and any move higher will struggle. While the Dollar will take it on the chin against other currencies, this pair may not move as much as other ones like the NZD/USD. This is because no matter what Mr. Bernanke says – there are going to be big problems in Europe. If for some reason he suggests that easing isn’t on the table, this pair will fall and fall hard.
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I believe that this pair will only be tradable after his testimony, and like most pair – I am thinking of waiting until the end of the session in order to place any trades as the action during the testimony will be erratic. At the end of the session, if the pair falls for the session, I am shorting again. If it gains, I will wait until I see a weak candle to sell again. I am not buying the Euro in this particular circumstance because of all of the unanswered questions in that area of the world.