The EUR/USD pair had a strong showing on Tuesday as the 1.3150 level now looks to act as support. Although I have been bearish of the Euro recently, and therefore not involved in this pair, I still believe that there could be a serious problem facing Europe soon. However, it is obvious that the market is focusing on the Federal Reserve and its actions, as well as the so-called "fiscal cliff" discussions going on in Washington DC.
It appears that the markets are pricing in some type of agreement between Congress and the President, and as such the "risk on" trade will follow. Also, you should keep in mind that there is quite often what they call a "Santa Claus rally" on Wall Street at the end of the year, and because of this risk assets generally will appreciate over the last couple of weeks of calendar year.
The strength of the candle was a bit surprising, and I will admit that I would have thought a move to 1.32 would've been a bit choppier. I still see quite a bit of noise all the way to the 1.34 level, but it is becoming more and more apparent that the buyers are out in full force and the optimists are in control.
Illiquid conditions coming
You should be careful however, as the markets will become less and less liquid over the next several sessions. This could lead to massive swings in one direction or the other, and you do not want to be on the bad side of a move. Stop losses are going to be more critical than ever right now, and because of that if we managed to break down below the 1.3100 level, I would think that the bullish move would be over for at least the time being.
A break of the highs from the Tuesday session of course would be very bullish, as would any type of supportive action on a pullback. I think selling is almost impossible at this point, unless of course we get some type of complete meltdown in the fiscal talks in DC. Otherwise, looks like the Euro bulls will be in control.
