The EUR/USD pair had a massively bullish session during the Friday trading session as the US jobs number came out at positive 165,000 added last month. This got the “risk on trade” back into play, especially considering that the unemployment rate ticked up to 8.3%. This got a lot of traders thinking that the Federal Reserve could end up easing in September, and has now become commonplace talk amongst the traders.
Whether or not the Federal Reserve chooses the ease in September, it doesn’t really matter as that’s what the market thinks right now. The market is happy with the European Central Bank’s stance at the moment as it appears ready to do something as well. This all provided happy feelings for the Euro, but the truth is that it did stop right at the 1.24 level.
The reason this is so significant is that it has been resistance in the past. It also starts a massive resistance area all the way up to 1.27 or so. With this in mind, it looks a lot like a pair that willing to run into resistance, and then fall right back down. It’s not a real stretch to think that the Europeans can somehow disappoint the markets going forward, and as such we think that the real risk is still to the downside.
Considering that most of the bullishness in this pair is predicated upon the idea of or monetary easing, we think this makes it very weak argument for buying the Euro. In fact, it can’t help but be noticed that stimulus just isn’t giving the results that once did. Because of this, we think that this pair is doomed to fall even further, but may need a little bit of a bounce in the meantime.
We are selling the first week candle we see near the 1.25 handle. This could be on the daily chart, four-hour chart, or even the one our chart if it’s placed perfectly. We think that’s the 1.25 level will bring in a lot of sellers, and of course there’s always going to be weekend risk as well. If something comes out over the weekend, there’s a real chance that we could see this pair gap straight back down. There is no currency in the world right now that has to come headline risk associated with it like the Euro.
Written by FX Empire