The EUR/USD pair fell during the session on Thursday as the fears of a Spanish meltdown are starting to pick back up. The spread between Spanish and German bonds is at just under 19% on average now, and this suggests that the Spanish bond markets are about to become rather stressed.
The market has risen lately though, but in the biggest picture this seems to be a continuation of the larger consolidation between the 1.35 and 1.30 levels. The 1.3250 level is an area as well, and the breaking out of the pair to the upside of this level and the pullback to prove support would have many traders thinking that the pair is a long now. The hammer for the Thursday session looks healthy, but the reality is that the pair hasn’t been able to gain serious traction after the initial knee-jerk reaction to the comments by Ben Bernanke that rates in America would remain as low as possible for as long as possible. The gains have almost been erased as the market has been bearish over the last several sessions.
The fundamental picture in Europe is still very risky, and it is hard to believe that the issues in that region will be avoided over time. The whole situation in Europe seems to be an attempt to buy time for the financial institutions to shield themselves from the inevitable meltdown in some of the debt markets.
The breaking of the top of the Thursday candle is a buying signal, but we see the real risk is to the downside. We are looking to sell in general, and we prefer to do it based upon a breaking of the lows from the Thursday session. A pop will have us ignoring it, and looking to sell in the vicinity of the 1.35 level as it looks so resistive. Any signs of weakness there will have us selling as well, and it isn’t until we close well above that on a daily chart that we are comfortable going long of the Euro. With this being said – we are simply waiting for sell signals.
Written by FX Empire