The EUR/USD pair shot straight up during the session on Tuesday as the 1.30 handle has given way completely. In fact, we managed to go through the 1.31 handle, and it looks like we are going to continue going higher. We are currently pressing against a resistance area, and look likely to break out above the 1.32 handle in the next session or two.
However, you must keep in mind that this is a potential double top, but the fact that the candle close so close towards the top of the day’s range suggest that this is a very unlikely scenario. If this unlikely scenario does hold though, we figure that we are looking at a consolidation range between 1.32 and 1.28 or so.
If the Spanish finally raise their hand and asked for a bailout, this market should absolutely skyrocket. Granted, this will more than likely be a temporary reaction, but seeing the pair at 1.35 would not be a stretch of the imagination.
If the Spanish somehow balk at the idea of getting this bailout, this will absolutely crushed the Euro. However, eventually the Europeans will have to devalue their currency, and is more than likely will lead to lower rates over the long run. The idea of bailing out Spain of course relieves a large burden off of the European Union, but at the same time also involves printing a lot of “free Euros.” This is the type of action that you expect of the Federal Reserve, and that’s why the US dollar is terminally week. If the Europeans go down this road, there would be a new dynamic for the Euro, meaning that it should be a weaker currency over time. This is actually the base case scenario that we have.
The Spanish simply have to ask for a bailout, and time is running out. While this will be a nice strong reaction, there will be a great shorting opportunity someday as well. Because of this, this is probably one of the more difficult currency pairs to trade at the moment. We would buy on a slight dip, or a move above the 1.32 level. However, if the Spanish do something reckless, it’s time to get out of that trade in start shorting aggressively.
Written by FX Empire