EUR/USD fell during the session on Wednesday after initially rising above the 1.28 handle. This level has been a significant support area for some time, and as such I had anticipated it to perhaps give a boost to the Euro. Once the US Presidential elections were over, the markets shot up from the duel hammers that had printed over the last couple of days. This certainly looked like a very bullish sign, and would've been a reaction to the oncoming money printing and exorbitant spending that the Obama reelection signaled.
However, by the middle of the session we had the European Central Bank Chairman talk about how Germany seems to be going into a slow growth period for the fourth quarter. Once this was stated, this is ripped away all pretense of growth in Europe. As a result, the Euro fell drastically and we formed a pretty ugly shooting star.
The 1.28 Level
I've been saying for quite some time that the 1.28 level is fairly significant. Because of this, I believe that if we break the lows of the Tuesday session we should see a sustained a selloff in this currency pair. I would suspect that the 1.26 level would be tested in very short order and the 1.25 shortly after that.
However, one of the things that gives this pair a little bit of a reprieve is the fact that the United States now finds itself approaching the "fiscal cliff." If this is triggered on December 31, this all but ensures a recession next year. With the way that the elections ran over the course of the previous year, there is a real threat that the two parties will not bother working together.
Looking at the chart, it appears that we have broken below the rectangle that has been holding this pair for some time. I don't know how quickly this pair will fall, but I do believe that it is only a matter time. Going forward, I believe that the "risk off" trade will be more often on than off, at least until the end of the year.