The EUR/USD pair has been very stubborn recently, and the Tuesday session proved to be more of the same. The 1.30 level is a well-known support area, as every time the markets have approached it, the bulls came back in to push prices back above that level.
The line is also the bottom of a massive descending triangle, and Tuesday saw the level being tested again – broken above, and retested in the waning hours.
The level represents a “line in the sand” for the bulls, and the bears have attempted time and time again to break it down. There are a lot of rumors out there as to who is involved at that level, and the Asian central banks are the most common suspects. They have diversified much of their holding of US dollars into Euros recently, and this freefall would costs them dearly. Also, there is a lot of talk about the Brazilian central bank being involved, as they are known to have bought a lot of Euros in the last couple of years as well. No matter who it is, there is certainly a massive support level at this point.
The 1.30 level will be thought of as “when it all came tumbling down” if the fall is as strong as the support would suggest. The Greeks look like they are closer than ever to defaulting, as the leftists that were just elected have openly stated that the austerity agreement is essentially “null and void” as far as they are concerned. Adding to this, the French and Germans also elected many anti-austerity politicians as well. There is now open talk about how we are seeing the start of the end for the Euro. While this could be true – that is certainly a long way away.
The selling of the Euro is the most obvious trade though, and as a result many traders have been involved in doing just that. The Federal Reserve is possibly going to ease further later in the year, and as a result the Euro has been somewhat buoyant against the Dollar. However, if the situation in Europe starts to unravel, as it is starting to look like, this pair could move rapidly to the downside.
If the level gives way, the next serious support area looks to be at the 1.26 level, and it is there that we think this pair will end up in the short term. However, we have to be able to convince the market to give up on the Euro. However, once the bulls give way, we look for massive moves. The situation in Greece can only add bad headlines at this point in time, so this is a more likely outcome in our opinion.
The bullish case simply cannot be made at this point, as the descending triangle still looks intact. The top of the triangle would have to be broken in order for us to buy, and this looks very unlikely at this point.
Written by FX Empire