The EUR/USD pair had a slightly positive tone to it during the Tuesday session. The fact that the 1.25 level still hasn't been violated to the downside does state the obvious: the 1.25 level is an area where certain traders feel there is value in this currency pair. However, this is starting to look more and more like consolidation and consolidation typically leads to continuation.
The "solution" that came out of Europe last week still is very thin on details and in fact one go into effect anytime soon. More than likely, we will see the markets punish the Europeans long before they can get any of this implemented. The Germans have court battles coming to test the constitutionality of the agreement. Granted, in the past the Germans have done this before only to rule in favor of the EU, but it does put some doubt in the air.
More importantly, Spanish bond yields rose after this agreement. For something that was supposed to take care of the Spanish and Italian bonds markets, it certainly has failed so far. Because of this, I feel personally that the Europeans are still far behind in dealing with this obviously toxic situation. In fact it seems that the pseudo-solution that they came up with was born more out of a fear of what the markets were about the due to them than any type of consensus of a clear path going forward.
Consolidation and central banks
The ECB and the Bank of England both have meetings over the next 48 hours. There will be announcements made, and there is an expectation of the ECB cutting interest rates by 25 basis points. There are expectations of the Bank of England purchasing more gilt bonds, which is of course another form of monetary easing. With this being said, I still have trouble with the idea of putting money into Europe at this point in time.
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It has been proven time and time again that the euro fails every time it tries to rally. I believe that we are a long way away from the steady and progressive dance higher that we have one seen in the Euro. With this in mind, I prefer to sell overall but the recent action looks like a slightly upward bias for the next couple sessions. Nonetheless, it does appear that the 1.27 level will keep a lid on the market, and I am willing to sell a week candle at that point. If the Friday candle that was so strong gets violated to the downside I'm willing to sell aggressively. If we break higher, I won't join the fray, I will simply wait until the 1.30 level to sell as it is an even stronger resistance point. I believe that we are in a cyclically negative time period for the Euro in general, and I am not willing to hold onto this currency for more than a short term scalp.