The EUR/USD pair fell hard during the session on Monday as the result of the Greek election only provided a short-term boost to the currency. It is becoming obvious to market participants that there are many other issues on the minds of their fellow traders now, and quite frankly the Greek elections were a bit of a sideshow.
The Spain bond auction didn’t go well, and as the world knows – the Spanish potential for destruction against the Euro and other financial markets dwarfs anything the Greeks could cause. The market looks very weak, and the 7%+ yields Spanish ten year notes will certainly continue to concern traders around the world.
The 1.25 level looks to be tested soon, and there really isn’t much to stand in the way of reaching that level looking at the charts. But then again, there is probably a heading waiting out there that could send this pair up on a spike after all, as it has been trading on headlines over and over lately. Because of this, trading the Euro has been much more difficult over the last two years than any other pair on the whole.
The downside is an ongoing process. The Euro has a lot of supporters out there in the form of central banks, and as a result it gets bought quite often. The yield in this pair is positive after all, and that is something that will almost always attract traders to be long. (In this environment though, the interest rate swap is hardly worth it to retail traders.) Even saying these things, it must be said that the market is one to sell on rallies, not buy. The downside risks in Europe are far too strong to give any real thought to buying this pair.
The Federal Reserve has a two day meeting starting today, and there is always the chance that they will do something to ease policy. This seems to be the expectation of traders around the world, and this is why we think a surprise in that regard would really send this pair lower. We think that trading this pair to the downside is the only way to go at this moment. A break of the lows from Monday has us selling, and rallies induced by the Fed will as well, but only after the market calms down a bit.
Written by FX Empire