The EUR/USD pulled back a bit during the Monday session as we await the decision out of the German High courts on Wednesday as to whether or not the ESM is in fact constitutionally allowed in Germany itself. Obviously, if it is ruled unconstitutional this would be a major setback for the plans to stabilize the Euro.
However, I find it very difficult to think that the Germans are going to suddenly blow up the Euro, as somehow there will be a pathway to constitutionality. There could be further restrictions were even conditions applied, but to think that they will essentially abandon the Euro in short order is pretty far stretched.
The pair did fall at the 61.8% retracement level, which also coincides with the 1.28 level. It makes sense that we would fall at this point in time, as we are at the major handle, and of course at the next resistance area.
Buying on the dips?
For myself, I believe that the pair has essentially a clear path to the 1.30 level. Obviously, some kind of headline shock could send the spear straight back down but I believe that the market is pretty dead set on reaching 1.30 before any serious resistance occurs.
I am still long-term bearish on the Euro and even a balance all the way to the 1.30 level doesn't change the fact that the pair has been under extreme stress over the last several months. I would become quick to short despair if we get some type of resistant candle near 1.30, but in the meantime I do believe that we are going higher.
In the short term, actually plan on buying on the dips. This goes against everything I believe personally with the Euro, but the charts dictate this. I think that if we fall down to the 1.2650 level, we would find significant support. On a break above the highs from Friday, we would have opened up the door to 1.30 with very little standing in the way.
