The EUR/USD pair had a back and forth session on Tuesday, after plunging so violently on Monday. The fact that we held above the 1.30 handle was indeed bullish in and of itself, and as a result there will be a bit of hope out there for the Euro. However, I think that the drama in Italy is far from over, and this pair will still be subject to sudden headline risks and disruptions.
Look at the chart; I think that anything that pushes this pair up to the 1.3250 level would be an excellent selling opportunity. Any time that the rally fades out, I will be selling this pair of the short term charts. I think that it isn't until we clear the 1.33 handle that we can say that that momentum has turned back around in this market.
It really is until the Italians come together with some type of coalition and their government that buying the Euro will be a much safer proposition. Sure, there will be bounces from time to time, but I think eventually we will break down in this pair as the ramifications of the anti-austerity vote in Italy are felt. After all, we have seen populations and governments capitulate to the demands of bankers and those who prefer austerity so far, at least until yesterday. While many people do not recognize this, it is in fact a bit of a watershed moment waiting to happen.
1.30 will determine the next move.
I believe that the 1.30 handle will be vitally important for the future of this pair. I think that eventually it should give way, but if it doesn't that of course would be a very strong sign. After all, when the third-largest economy in the Euro zone both against the austerity measures, this should send the currency reeling. If for some reason it were hold up, that would be impressive.
Ultimately, I think that the 1.30 will break down, and this will send the sellers into a bit of a frenzy. We could see a move down to roughly 1.28 in the short term, which is essentially what I'm aiming for at the moment. Alternately though, the Federal Reserve and its quantitative easing will eventually pick this pair back up.
