EUR/USD Daily Outlook Feb. 22, 2012

By: Christopher Lewis

EUR/USD has been the focal point of the Forex universe lately. Needless to say, the whole situation in Greece has been on the minds of traders worldwide, and the pair has been very susceptible to headline shocks because of it. In this backdrop, we find this pair to be very choppy overall.

The Greeks have managed to get their second bailout in the course of three years. The initial reaction was the one you would have expected: A surge to the upside as traders suddenly thought the world wasn’t going to end. After all, this was the biggest concern of the markets and this meant that the Greeks were going to impose austerity and pay off all of their debts. Of course, there are a lot of things that seem to be glossed over, and the idea that all of the problems are gone is simplistic thinking to say the least.

In fact, Europe is in a ton of trouble going forward. The list of reasons that investing in Europe isn’t wise is a long one, and it looks as if the entire problem with the Euro area is a structural one. In other words, now that the immediate concerns of a Greek default are put to the side, there are now many other places to start thinking about. (Portugal anyone?) However, it should be noted that the possibility of a default by the Greeks still exists.

One burning question that I can’t help but ask is the following: If the Greeks get a bailout and their creditors are taking a 53% haircut on bonds, exactly who is going to rush in to loan the Greeks money in the future? So far, it is the European Central Bank. Things are going to be problematic for the foreseeable future in Athens, and it must be said that the EU is heading into recession as well.

1.3250 Again

The 1.3250 level held back the bulls again, and even printed a shooting star for the Tuesday session. This is the second shooting star in a row, and the fact that it is at the 38.2% Fibonacci retracement from the larger move down suggests that we could see a fall from here.

I am going to sell this pair if we break the lows from Monday and Tuesday. I would expect the pair to make a move towards the 1.30 level at that point. I see no reason to buy the Euro with the way it acted after the bailout came.