The EUR/USD pair rose during the session on Friday in order to trigger the buy signal by breaking above the top of the hammer from the Thursday session. The 1.3250 level below is a support level, as it was also recently resistance. The 1.35 level above is a substantial resistance area, and with all of the issues in Europe at the moment, we aren’t big fans of holding this pair to the long side for great lengths of time. The candle for the day also featured a bit of a pullback from the highs, so it is obvious that traders are a bit leery of holding Euros over the weekend as well – not a good sign of confidence.
None the less, we think the short term move for this pair is probably up, but any longs would be of the short-term variety as there are so many headlines that could come out of Europe in order to push this pair back down. While the short-term can be long, we actually prefer to sell this pair in one of two scenarios: A break below the bottom of the hammer printed on Thursday, or a sign of weakness at the above 1.35 level.
The breaking of the 1.35 level would give us more confidence in owning this pair longer-term, but the reality is that there are concerns with bond spreads in the EU, and the banks in that region are certainly going to be difficult to own as well since they are so heavily exposed to bad debt. The region will more than likely go into a recession, and some are even thinking that it will be a severe one that could take a few years to climb out of.
Over all, we prefer to sell the Euro all things being equal, but we also must acknowledge that the short-term action looks fairly bullish. This is why we prefer to simply wait for one of our selling scenarios to pop up as we believe those trades will be the type we can hang onto for much longer than buying.
Written by FX Empire