By: Christopher Lewis
The EUR/USD had another strong showing during the Friday session in order to move up to the next resistance area by the end of the day. The pair has recently seen some strength, and the move certainly will have been more or less initiated by large amounts of short covering over the last week or so.
The Euro has been boosted by new found optimism for the Greek bailout agreement, but the fact is that the European Union is still a region with many potential landmines ahead. The LTRO (version 2) is going to be held on Wednesday, and this will show how much of a bailout that the EU banks had to take on again. The world is a fickle place, and even more so when you are talking about the EU and its financial situation.
The path going forward will more than likely be greatly affected by the results on Wednesday, and as a result the first couple days of the week could be fairly quiet. However, it should be noted that the Greeks aren’t the only country with problems. One has to think the bond vigilantes will start going after Portugal again in the near term.
1.35 And 50%
The 1.35 level was tested on Friday, and this area looks to be fairly resistive by the reaction. It should really, it is the 50% Fibonacci retracement from the fall last year, and the number is a massive “round number” as well. This will almost always cause a reaction, and the area has seen a lot of clusters in the past as well. All of this sets up potential weakness if we get bad news.
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Currently, there is talk of the Germans slowing down the decision on the size of a general bailout fund. In general, the Germans simply are opposed to it, and aren’t seen as letting the issue go. Quite frankly, why would they? They are probably a little bored with bailing everyone else out.
I see this area as a potential barrier that will cause a pullback, and I believe that over the next couple of sessions we will see consolidation between the 1.3250 and 1.35 levels as the pair simply is far too headline driven for most traders to feel comfortable being involved with for more than short term trades.