The EUR/USD pair initially had a very positive day during the Monday session as the markets reacted positively to the meeting between Sarkozy and Merkel. The meeting was successful in producing an overall concept of a fiscal union, and would be presented at the EU summit on Friday. The consensus was that this is the first real step towards a solution.
However, during the American afternoon, the entire 15 nations in the Euro currency have been rumored to be put on credit downgrade watch from the ratings agency S&P. The fact that the agency neither confirmed nor denied this is particularly troubling.
Looking at the charts, the 1.35 level still seems to be massive resistance as the day fell just short of breaking it yet again. This is the fourth day in a row where the currency pair attempted to break the level, so the ferocity is well noted. The breaking of that level would be a massively bullish signal, and at that point we would have to be long this pair.
For the downside, we still see the 1.31 level as an area that should continue to put up a fight for the bulls. The selling down to that level looks ready to happen, as the daily candle for Monday looks like another shooting star in this pair, and the next move could very easily be down. The breaking of the lows on Monday would have us selling.
The pair will continue to be choppy at best, and quite frankly – one of the more dangerous ones to be bothered with. The headline risk is simply far too great in both directions at this point. With this in mind, we are looking for further weakness, but in a choppy manner. We see 1.31 as the floor currently, and would be quick to take profits if we approach that level. The trend is down, and we think that it will continue to fall every time it rises. Selling the rallies in the short-term has been the way to go, and we think it shall continue to be.
Written by FX Empire