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EUR/USD Daily Outlook Feb. 8, 2012

By: Christopher Lewis

EUR/USD continues to trade in the fairly tight range that we have seen recently, as the markets are being driven on emotion more than anything else. The Tuesday session saw rumors and markets that wanted to get “ahead of the news”. The possible agreement coming out of Athens between the Greek government and the Troika sent the Euro higher against most other currencies around the world. The announcement in Athens never came, and in fact the government officials that were supposed to vote the new agreement into law cancelled their meeting simply because there was nothing to vote on. None the less, hope remains eternals when it comes to the EU.

The Dollar was especially hard hit as the Federal Reserve Chairman Ben Bernanke reiterated his intentions of low interest rate policies in front of Senate leaders during the session, effectively exporting inflation to the rest of the world, and removing it from the United States.

Against this backdrop, the pair rose to the 1.32 level that I pointed out as a possible resistance zone and hindrance to any bullish action. Now the real question is whether or not the market can jump over the level and continue onto the next resistance area. The real question is whether or not the agreement is made, and if the move will have already been “baked into the markets” now. Also, there are many reasons to sell the Euro beyond the agreement at the moment. As soon as Athens gets some kind of deal going forward – Lisbon, Rome, or Dublin could come looking for something similar. Also, there is that whole bit about much of Europe going into recession. With this in mind, the “agreement” will more than likely be a move that could be faded eventually as the fundamentals take over again.

Three Levels

The chart has three levels that I am watching currently. The 1.30 “area” (as it extends from 1.31 to 1.29 is supportive, and the 1.32 area is certainly some kind of pivot. The 1.35 level above is resistive, and just above the 50% Fibonacci retracement level from the most recent selloff on the longer-term charts. Because of this, I am essentially willing to sell the Euro, but will need to see some kind of price action to do so.

EUR/USD Daily 2/8/12

I am looking for weakness at this area, although the candle looks very healthy. The breakout that could come will set up a battle at the 1.35 level, and I am willing to wait for that area as well to short this pair. The main reason I don’t want to get long at this point is simply because of the headline risks involved. Even with a deal struck, it would only take some other debt-laden country to start complaining for this pair to turn right around and fall. The problems in Europe are long-term and structural, and this debt issue will continue to be something to worry about on and off for several years to come.

I would leave with one thought: Even if Greece, Portugal, Spain, Italy, and Ireland get the current debt worked out in the form of haircuts – Who is going to lend to them in the future? Currently, the largest buyer of the debt most of these countries sell is the ECB.

Christopher Lewis
About Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.


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