EUR/USD had a stellar session during the Friday trading day as nonfarm payroll numbers came out much better than expected. This led to a "risk on rally" that as usual had the Euro going higher. In a lot of ways, this is the de facto type of trade when you get better than expected economic news.
This was preceded by a lot of Euro weakness based upon a disappointing statement by the head of the ECB. Originally, the markets have gotten excited thinking that the Europeans were finally ready to come out with a monetary bazooka of sorts, and as such the Euro rallied. We saw how quickly the Euro fell in value once it was understood that no concrete plans had come out. It's ironic that we saw such a rapid reversal on Friday, and it may be because of the 8.3% unemployment rate in the United States.
Simply put, people may be betting on the Federal Reserve loosening monetary policy in the next couple weeks or even during the late September meeting. Because of this, the long Dollar positions that a lot of traders will have had on need to be unwound.
Massive resistance ahead
The biggest problem with this theory by the bullish traders is simply that even if the Federal Reserve does ease monetary policy, this does absolutely nothing to stabilize the situation in Europe. In fact, it is more than likely going to be in reaction to the poor nature of the European situation. This being said, I think we're entering a rally that will more than likely end up getting stopped in a very abrupt fashion.
With this being said, it must be pointed out that the 1.24 level is on the strong rally for the Friday session again. The 1.24 level is the beginning of a massive resistance cluster all the way up to 1.27, with a special emphasis and nucleus around the 1.25 handle. It is in this general vicinity that I am looking for a weak candle from which to sell the Euro again. Once all of the excitement settles down, traders will begin to look at the longer-term picture again and recognize the fact that Europe has a very long way to go.
