EUR/USD Daily Outlook April 17, 2012

By: Christopher Lewis

The EUR/USD pair has been focusing on the Spanish debt markets lately, and with those ten years now offering more than 6%, concern is likely to enter the markets. The action on Monday showed no real evidence of this though, as the market sold off the Dollar on the whole.

The EUR/USD pair has been one that a lot of people have given up on trying to trade, as it is obviously one of the most stubborn pairs out there at the moment. After all, you have two economies at polar opposite ends of the spectrum, yet the currency markets simply do not reflect this. After all, there is more than one European country that has the markets spooked, yet the Euro just won’t give way it seems.

Head and shoulders? 1.30

The pair could be forming a head and shoulders pattern though, and this is one of many reasons I am bearish. Granted, this is a complex head and shoulders, which I find a little less reliable, but the truth is that we are having more trouble rising for any real length of time in this market. With that being said, I cannot help but notice that the rallies are to be faded at the moment.

The 1.30 level is where we bounced from on Monday, and this is no coincidence. It is obvious at this point that the 1.30 level is a massive barrier. Selling this pair is a somewhat limited gain for bears until this area gives, but it should be noted that the bullish movements are going to be tough as well. Quite frankly, we are at a crossroads in this pair, and we will have to make a real decision soon.

The bond markets could force the issue, and there is also the possibility that the ECB steps in and starts buying everyone’s bonds in the EU. (Figuratively speaking.) However, in some perverse way, this might actually life the Euro, as it would alleviate some of the fears. With all of this being said, I have decided to employ Occam’s razor, a theory that says the simplest solution it normally the correct one.

I am selling and daily close below the 1.30 level, and am fading rallies on the first sign of weakness as there is almost always a bad headline waiting to show up. I won’t buy until we get above the 1.35 level.