The EUR/USD pair fell on Tuesday as the markets sold the Euro off in general. The Spanish and Italian bonds markets saw a spike in yields as the fears of a debt crisis have obviously not gone away in Europe. The banks in many countries in the periphery continue to borrow massive amounts of capital from the LTRO, and this shows just how distressed many of them are.
The 1.30 level below is a massive support level though. Because of this, the market will struggle to continue to the downside. However, if it does – we would sell this pair aggressively as the breaking of this level would be a massively bearish signal. The rallies in this pair are to be sold as well, and because of this, we are looking to sell only. Any rally that shows weakness is our signal, and a daily close sub-1.30 has us selling as well. Buying cannot be done until we clear the 1.35 level on a daily close.
The markets will certainly remain volatile, as there is always someone out there that wants to buy the Euro it seems, but the reality is that Europe is a mess and the rest of the world seems to know it. Many central banks own Euros, and there are rumors that some Asian Central Banks may be defending the 1.30 level. If that level gives, we are looking for a move down to at least 1.26, and possibly lower as well.
The 1.25 level will also be supportive based upon the fact that it is a large round number. The pair will be at risk for headline interference, and most of those will more than likely be bad. With that in mind, we are much more comfortable being short of this pair than long of it. The economy in the United States is obviously stronger than the one in Europe, and as a result the pair will be bias to the downside overall for the foreseeable future. Even though the market celebrated the second bailout of Greece, it has become obvious that the situation in Europe is far from over.
Written by FX Empire