The EUR/USD pair fell during the Tuesday session as the Euro pared some of the gains overall. The recent move has been absolutely parabolic, so this of course wouldn't be much of surprise to many out there. Of course, the move has also been aided by the fact that there has been a lot of short covering, and as such the rally has certainly been exaggerated. After all, you can see that we were 600 pips lower just two weeks ago.
The candle on Monday was a shooting star, and it did suggest that perhaps we could see a pullback. This is exactly what we've had, but we still remain above the 1.30 handle. This area is of particular interest to me because of the big round number aspect of it. It will be interesting to see how players react to the level. I personally think that the 1.28 level is a bit more supported, but these large numbers do tend to attract traders.
The situation in Europe really hasn't changed all that much, as the ECB offered to buy three-year bonds. The fact is that the Spanish haven't asked for this help yet, and are being overly stubborn. With this in mind, it looks like more of the same in Europe is coming: a lot of disappointment.
Two levels to watch
The areas below that I am watching include the 1.30 and the 1.280 handles. Both of these areas look interesting to me, but I do think that if 1.28 this pair gives way to the sellers, this pair will crater. With the situation in Europe, one cannot help but feel it's only a matter time before we get that negative headline the bushes the market lower.
The Federal Reserve of course has announced that it wants to kill the Dollar via the quantitative easing route, but the fact is that the Europeans will need a much lower valued Euro before it's all said and done. Because of this, you can expect extraordinary action out of the European Central Bank over the coming months, and because of that I believe we will eventually see this pair continue to the downside again. Without a doubt, this is probably one of the more erratic pairs recently, and I don't see this changing. In fact, one of the easiest ways to trade the Euro is against other currencies besides the US dollar.