The EUR/USD pair had another negative session on Friday as the risk appetite around the world continues to fall. Now that we've broken below the 1.28 level, I am more bearish of this pair than ever. I don't think that we're necessarily going to collapse, because there are certainly issues in the United States as well. However, I think the bias is most certainly shifting to the downside yet again.
Looking at this chart, you can see that the shooting star from Friday shows a real attempt to try to break above the 1.28 level again. The 1.28 level was the bottom of a larger consolidation zone, and since it been broken we can take the simple measurement of the height of that consolidation zone and project lower for a target.
Based upon that mathematics, we have 350 pips to go from the 1.28 level. Based upon that, the market should run down to the 1.2450 level. With that being said, this is my target at the moment as I believe the problems in Europe will continue. Quite frankly, if it wasn't for the “fiscal cliff” in the United States threatening to become an issue, this pair would probably move much quicker.
Continuation
The shooting star from the Friday session signals continuation, especially considering that the 1.28 level acted as resistance yet again. Remember, the basic tenet of technical analysis is that support becomes resistance, and vice versa. This is what has happened now, and as such we should be seeing much lower prices.
The Spanish bond markets are starting to see rising yields in the ten-year rate, and this of course suggests that people were starting to worry about Spain again. Now that the US Presidential election is over, it is my opinion that we will circle focus more on Europe, and less on politics. However, that “fiscal cliff” will continue to plague the markets as well, and headline risks are going to be numerous. In times of uncertainty, the US dollar is by far the most favored currency even when problems are arising out of the United States itself. Odd, but true and has worked over the years so I see no reason that it will change.
