EUR/USD rose quite a bit for the third day in a row on Friday, only to retreat in the end. There is open speculation that the ECB is about to get aggressive in the markets to help stabilize the European debt concerns, and this gave a bit of a relief rally for the Euro as a result.
The end of the trading session saw a reaction to the overextended buying in my opinion. After all, it was a couple of comments by officials that sent this pair racing higher, but there were no real concrete solutions proposed either. This is a reaction of a market that has been fooled once too many times perhaps. Also, the fact that the weekend was coming certainly would have had some traders covering their bets as well. The fact that they weren’t ready to hold over the weekend shows a real lack of conviction in my opinion.
1.24 And a shooting star
I cannot help but notice the shooting star for the session. This shooting star doesn’t exactly instill confidence, and I would suspect that people are starting to think what further easing generally means – lower rates, and more money printing. Neither of these actions are good for a currency’s value over time, and it would make sense that the Euro continued to fall overall. It should be noted that the European Central Bank isn’t exactly going to be disappointed with a lower Euro either.
Looking forward, I see a break of the Friday’s lows as a sell signal in this market. The 1.20 level will certainly be targeted again if this happens, and I fully expect it to do so soon. The upside is going to be hampered by several factors as well in my opinion, and this makes buying the Euro a difficult proposition at this point.
The 1.24 and 1.25 levels are certainly resistance, and the noise around the 1.25 handle actually runs all the way to the 1.27 level. Add to that the idea that there are so many potential headline risks out of the area, and it is going to be foolish to be long at this point.
