The EUR/USD pair continued to be the focus of all things Forex on Monday as the weekend saw the Spanish banks receiving a bailout. The 125 billion Euro bailout was initially greeted by the market with relief and pushed the Euro higher. The market then decided to fall below the opening price and because of this the market even fell lower as the gap was filled and broken below.
The action is very bearish, and suggests that the pair is ready to fall apart again. The bailout has the Spanish now vulnerable to a downgrade by the rating agencies, and this could push the country into a full out bailout later. This will certainly weigh upon the Euro if it happens, and will very likely lead to a lot of Euro printing as well.
The Irish have also mentioned over the weekend that they wish to see their bailout package matched to the Spanish one retroactively, and as a result we could be seeing the beginning of a larger series of issues as the various countries demand equal treatment. This of course is a major flaw in the structure of the Euro, and as a result will more than likely continue to hurt the prospects longer term for this currency.
The hammer from the Friday session is a good entry point if the market manages to break below the lows from that session. The breaking of this mark would suggest that the support has given way, and the downtrend should continue from that point. The market certainly has a downward bias at the moment, so a brake down from here wouldn’t be a surprise. The fact that the 1.25 level gave way so quickly certainly suggests that the pair is about to fall again.
The pair should continue to grind lower over time, as the problems in Europe are numerous. The technical picture of this pair continues to suggest selling overall and we are doing just that. The rallies will be sold on weak candles – either daily or 4 hour. A break of the previously mentioned hammer also has us selling. Buying isn’t a thought at this point.
Written by FX Empire