The EUR/USD pair rose during the session on Friday as the “risk on” rally continue to take hold. One has to wonder whether this was Euro buying, or simply short covering, as the markets gave up quite a bit of the gains the euro produce late in the afternoon. It should also be noted that the pair stopped right at the 1.24 level, which of course was the first sign of major resistance.
With the European Central Bank undoubtedly easing later this week, it makes sense that the Euro would lose value as interest rate differentials would come into play. Also, there is a highly likely chance that the ECB will start to print Euros. It’s a simple supply and demand problem.
We think that a break of the Friday lows signals fresh selling, and would aim for the 1.20 level. Remember, we had pointed out a bearish flag that broke down a couple of weeks ago that targeted the 1.15 area. We still believe that is the eventual target. This would make sense, as several of the European nations are in a recession already, and a couple could even be classified as being in minor depressions.
There is still a lot of work to be done in the European Union as far as the debts and finances, and as such we feel that the Euro is still a toxic asset to own. Over the longer-term, it is very likely that they will eventually get together but we simply cannot risk are capital with this kind of chaos going on in the markets.
The trend is down, and as such we do prefer selling this pair. Although the Europeans are gradually making strides towards fixing the problems, one cannot honestly say that they haven’t taken their sweet time. As for buying this pair, it would take a lot to get us to change her mind about it. Also, it should be noted that the 1.24, 1.25, and 1.27 levels above all look extremely resistive. Without a doubt, the path of least resistance is down – and that is why we choose to sell only.
Written by FX Empire