EUR/USD Daily Outlook March 19, 2012

By: Christopher Lewis

EUR/USD bounced on Friday as the 1.30 level holds the market up yet again. The level has become a focal point of the market, and as such has seen a lot of fighting between bearish and bullish traders. In fact, the 1.30 level could be a “defining moment” of sorts in this pair as it seems that so many bullish forces have decided to put up a bit of a “last stand” at the handle.

The area is 200 pips thick, extending from 1.29 to the 1.31 level. The 1.30 level is simply the center of this large support zone. While 200 pips may seems a bit large, in the big scheme of things I can assure it most certainly isn’t. The biggest areas for support and resistance are often this large, but they are rare – this is what makes the area so important in my estimation.

The economic forces that plagued to Euro haven’t vanished; they simply have been pushed to the side for the moment. The Portuguese bond markets certainly aren’t showing any real signs of improvement, and the Greeks will continue to miss austerity measures into the future as the recession there will have the tax receipts falling short as austerity almost always causes.

Nice bounce, looks like a good one to fade.

The pair has bounced quite nicely over the last two sessions, to form a hammer on the weekly chart. However, the proceeding weekly candle was a shooting star of sorts, so this suggests that we are going to see a tightening of the range. I believe the 1.3250 level could come into play as resistance again, and I am looking for weakness at that level to fade this rally. I also see the 1.35 level as a place where signs of weakness are to be sold going forward.

The 1.35 level simply must give way on a daily close to the upside to even consider buying this pair, and the 1.29 level needs to give way on the downside for me to sell and hold. I do think the latter of the two scenarios is more likely, but it is going to be a big fight in the meantime. Because of this, I am thinking that the fades will be for short-term trades going forward.