The EUR/USD pair fell during much of the Friday session, but found support at the 1.3150 level yet again. The resulting balance formed a hammer, and it does suggest that we are going to continue to see support at this very important level. However, we see significant resistance at 1.33 as well, and as a result we think this market is essentially “stuck.”
With all that being said, this market will certainly be impacted by what goes on in Washington DC with the so-called “fiscal cliff” talks presently, and as a result we think the market simply waiting to see whether or not Congress and the President can get some type of deal put together. If not, this could throw the United States into recession, and as a result would certainly put a hurt on the global risk appetite in general. Remember, it’s the United States that many people point out as the right spot in the marketplace right now.
The United States economy consumes a lot of the world goods, and as result this has far-reaching effects globally. If the United States goes into recession, it will certainly affect all other markets. With that being said, most of the time when we get recessionary problems like this money flows back into the United States Treasury markets. With that being said, it means repatriation of US dollars, as well as foreigners selling their own currency to buy US dollars in order to get involved in the bond markets.
Looking this chart, it is obvious that a break above the 1.33 level would be extraordinarily bullish, especially considering how much resistance it’s been. However, when you look at the longer-term charts is quite a bit of noise all the way to the 1.35 level and it will certainly be a choppy trade higher.
On the other side of that coin is the fact that the 1.3150 level continues to act as support. If we managed to break down below that we would feel much more comfortable if we had continuation all the way down to the 1.31 level before we start shorting. At that point time we would expect the markets to fall to the 1.29 handle, and then perhaps the 1.27 handle if we can continue.
Written by FX Empire