EUR/USD Forecast May 10, 2012, Technical Analysis

The EUR/USD pair continues to be the center of the financial world as the Wednesday session showed. The fall during the day was sudden, and the problems in the area continue to worry the trading world. The Greeks look like they are set to have elections again in June, which of course means that we will have even more uncertainty over the summer. The markets look as if they are starting to understand that there is something bad going on in Europe. Odd really, I would have thought this obvious!

The problems in Europe are structural. In fact, I think that the understanding that the idea of a single currency between the varying economies doesn’t make sense is starting to hit home. One completely ironic thing about this is that my wife who doesn’t know much about trading asked me a very poignant and obvious question yesterday when listening to the news about the Euro: she wants to know “How it is even possible for so many countries to have the same currency? It doesn’t seem to be possible. Is it a surprise this thing is failing?” Keep in mind, she is no economist, but just someone who understands that there are a lot of different languages, cultures, and religions all packaged into one pseudo-country.

The situation in Europe was even mentioned as a headwind by technology giant Cisco during the earnings call Wednesday evening. In fact, CEO John Chambers suggested that the problems in southern Europe are finding their way into northern Europe as far as IT spending. The stock is down over 8% as I write this. Europe keeps getting mentioned by the larger countries in the US as a problem, and this simply cannot be ignored as a sign.

We still see the 1.26 level as being a target eventually. Will this pair bounce between now and then? I would suspect so, after all, it just won’t die. However, the rallies are to be sold at this point, and if the 1.29 level gives way to the downside, we will be heavily short of this pair.

The 1.30 level should be resistive at this point going forward, and as a result we are selling the short term pops that we will see from time to time. The market is still looking for a reason to go long at this point, and the stories of Greece getting some of the bailout money none the less at the end of the month helped the stock markets late in New York trading. In other words, there is still plenty of “hopium” floating around at this point. The 1.26 level is the long-term low previously, and we think that the area will more than likely produce so support as well, and this looks like our target at this point. Buying this market isn’t possible until we see some kind of certainty for the European markets, and at this point we would also have to see a daily close above 1.33 or so.

EUR/USD Forecast May 10, 2012, Technical Analysis

Written by FX Empire