The EUR/USD pair initially fell during the session on Monday, but as you can see eventually got enough momentum to the upside to break above the 1.38 handle, albeit just barely. At the end of the day, the market does look positive and it does look like it wants to go higher. There is the big shooting star from Friday that we have to pay attention to, but in the end I believe that the shooting started formed on Friday was more or less a function of the liquidity than anything else. I do believe that this market is going higher, and certainly the trend does suggest the same thing.
A false breakout can scare a lot of traders, but for my money I believe that buying the Euro is probably the correct move, at least in the short-term. I don’t know whether or not this pair can get above the 1.40 level anytime soon, and I do expect this pair to be a bit choppy on the way up to that spot. I think that is going to take a bit of wherewithal for traders to hang onto any long Euro trades, but at the end of the day you certainly can’t short this pair, it’s been far too bullish.
European Central Bank
We already know that the Federal Reserve is starting to taper off of quantitative easing. This of course is something that the markets will continue to monitor, and any increase in it should be good for the US dollar. That could push this market lower, but quite frankly I believe that the real news is going to come out of the European Central Bank. There are concerns about deflation in the European Union, and that would lead to significant monetary easing. In fact, it would almost by default demand a lower Euro, which of course would put a lot of pressure on this pair as well. In the meantime, I expect this market to continue higher, but that’s why I think that perhaps the 1.40 level might be about as high as we get anytime soon. Granted, the illiquid conditions over the next several sessions will more than likely give be plenty of time to think about this.
