By: Christopher Lewis

During the Thursday session, the EUR/USD pair finally broke down below the 1.29 level as the fears over European debt issues continued. The trading is light in volume, and this can exaggerate moves. However, this also means there can be a serious lack of firepower out there, and this could be what we are seeing in US trading.

The pair fell after the Italian 10-year bonds auctioned at over 7% again. This is very bearish for the Euro overall. The bonds were trading at 7.07% as of 9:30 am in New York. The situation in Italy is starting to become very worrying as the Italian markets are much larger than the Greek ones. The failing of Italian bonds would have repercussion all over the world as so much debt is owed.

The 1.29 level is the bottom of a massive support zone starting at the 1.30 level. The breaking of this level would normally been a sign of the floodgates opening, but the Euro has found at least some interest during the session as the currency has so many times before. The real question is going to be whether or not there is true interest, or simply a lack of volume to push it back up. Also, there have been many Asian central banks working to lift the Euro over the last several months, and this could be a factor presently as well.

The sentiment going into 2012 is most certainly bearish for the Euro overall, and the Dollar should continue to get a boost from the “safe haven trade”, and one should remember that while Europe is going into recession, the United States is actually showing signs of expansion now. The future of this pair is almost certainly down, but the fall doesn’t look like the meltdown in the financial crisis seen just a couple of short years ago. The pair will more than likely be a “death by 1,000 paper cuts” kind of trade.

The Euro is without a doubt frustrating bears as every time it looks likely to give way, the currency finds someone to step in and lift it. However, one should keep in mind there are plenty of other currencies to sell the Euro against going forward, and the prudent trader will look for selling opportunities in the Euro, against many currencies going forward.