By: DailyForex.com
The EUR/USD pair fell during the session on Wednesday, testing the 1.3550 level. This is an area that has been significant support in the past, as well as significant resistance. This was especially true during the latter part of November, and as a result we think this is just a simple matter of “market memory” coming back into play. This market will certainly be affected by the nonfarm payroll numbers, and as a result it’s difficult to get to overly bearish or bullish of it at the moment. Quite frankly, I think the general vicinity that we are in right now probably have support all the way down to the 1.35 handle. It is not until we close below there that I would even consider selling for any real length of time.
On the other hand, we could bounce from here and it go as high as 1.38 and still remain within the reason consolidation area. That being said, I would suspect that we are probably going to spend more time between 1.3550 and 1.3650 than anything else. With that, short-term traders will more than likely look for supportive candles in order to start buying again.
American jobs and European deflation
This pair right now is all about American jobs on one side of the Atlantic, and deflation on the other. If the Americans can continue to add jobs at a decent pace, the Federal Reserve will be forced to taper off of quantitative easing. If that happens, you can expect the US dollar to appreciate over time, and this could be a bit of a “perfect storm” as the European Union is facing the specter of deflation. Deflation normally brings extraordinarily loose monetary policy, which of course weakens the host currency. If that happens, the Euro could get absolutely pummeled.
I don’t expect that to happen right away, but I do think that will be a theme later this year. In the meantime, I still think we bounce around in this 100 PIP range, at least until we get the jobs numbers and see the reaction afterwards.
