The EUR/USD pair initially tried to rally during the session on Monday, even with the low volumes during the Christmas Eve shortened holiday. The rally failing is interesting as it happened at the 1.32 handle, which is exactly one handle below the last failure. This shows continuing weakness over the last five sessions or so, and could be signaling that we are about to see a fall in this pair.
Why would it fall? The current issue involving the debt talks is causing a bit of headwinds for the bullish out there, and as a result risk related pairs are all suffering. The EUR/USD pair is certainly one of them, and because of this I think this pair will continue to act like it is trying to walk through concrete.
The 1.3150 level acts much like a floor in the market at the moment, and because of this I am not ready to start shorting this pair yet, even though it looks horrible. The area is roughly 50 pips thick from my point of view, and as a result I will need to see a daily close below the 1.31 handle in order to be comfortable shorting this market.
The biggest driver is the Congress and President
The pair will continue to struggle as long as the debt talks drag on. After all, there is no guarantee that the talks will end well, and as a result the markets could get a nasty surprise. The recent bullishness in this pair looks as if the market has already “priced in” a solution to the issue, and because of this there is a chance the announcement of a deal could be a “sell on the news” type of event – but only for the short term. I believe that a solution will continue to push this pair higher.
The downside of this pair seems to be protected at the 1.31 level, but I think if we get that level broken – we could see the 1.29 level in relatively short order. As for going long, if we see some kind of supportive action at the 1.3150 level – I will be buying. Also, if we break the top of the shooting star from Wednesday and Thursday, I would be buying aggressively again.
