The EUR/USD rose during the session on Wednesday again as the bullishness continues. However, as you can see by the chart there seems to be a lot of give back towards the end of the day as there are relatively long wicks on top each of the candles.
Last week, we saw a couple of shooting stars in a row, and we have seen shooting star shaped candles since then. However, I wouldn't necessarily be ready to start selling at this point time. After all, the 1.3150 level was significant resistance we have broken above, and should now function as significant support.
With all that being said, I believe that we're eventually going to breakout in one direction or the other, but currently look like were forming a 150 pip tall consolidation area for the market to bounce around in. After all, volumes will be a bit low over the next several sessions. Because of this, I think that it will be difficult to break out of this area was we have some type of headline to push the markets in one direction or the other.
You have to remember that the markets have been focused on the so-called "fiscal cliff” lately and as a result is probably anticipating some type of resolution. If and when it doesn't get it, we could see some massive volatility at that point time, but more than likely any selloff from that would be a buying opportunity as the Federal Reserve has restated its desire to continue the asset purchase program and mission to completely destroy the US dollar. Because of this, the Euro will more than likely continue to gain on the US dollar over the next several months.
Headline risk
Headline risk that we face in this currency pair is probably relatively limited. Although I think that a failure to come to terms with the fiscal cliff would initially produce a massive selloff, I think that this pair will find enough support at the 1.29 level in order to push prices higher over time even if that happens. In fact, if you see this pair selling off rapidly your first question should be whether or not you should be buying yet, or waiting till later. This is because I feel that the market is relatively "comfortable" in this general vicinity. While there is certainly downside risk, I believe that this will become a very choppy and range bound market over the next year.
