EUR/USD found itself on the back foot Monday as the euphoria waned yet again. The reality has been that every time the Europeans come up with some type of solution, the markets get excited for a few moments, and then probably selloff yet again. It looks that it may be happening again, although it is a bit premature to declare this obviously.
Over the weekend, there were several articles out that suggest that the Germans may face a bit of a battle in their higher courts as to the constitutionality of the agreement. Granted, this isn’t the first time this is happening, but it certainly doesn't help with the risk appetite of traders willing to buy Euros.
As a side note, it should be noted that Spanish bonds went up in yield yet again on Monday. For an area that suddenly got some type of relief and is talking about a fund to prop up the bond markets, this is very disconcerting. Simply put, if they have a solution - why doesn't the market believe them? The answer of course is that the market has been paying attention over the last couple years.
1.25 matters yet again
The 1.25 level below should be supportive yet again, especially considering the fact that the nonfarm payroll announcement comes out this Friday. There are plenty of other things going on this week they can kick around the Euro, and as such this pair will more than likely grind sideways between the 1.24 and 1.27 levels. We have a meeting of the ECB, and the market will be expecting some type of easing. This of course could be a shock announcement, but the reality is that the Europeans should be coming about to realizing that they are painted into a corner at this point. In other words, the markets are getting bored with their actions and are willing to punish them and less substantive actions are taken in regarding their debts.
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As for myself, I am still every bit as bearish on the Euro as I have been over the last year and half. I think that rally should be faded, and obviously many participants in the market agreed with me on Monday. On any signs of weakness, or a break of the lows from the Monday range, I would be selling this market for short-term trades only. As for the longer-term, we need to see a break down below the 1.2350 level in order to start to get comfortable with that.