By: Christopher Lewis
If there ever was a day that was a vote of “no confidence”, it was Tuesday. The pair had broken out on Monday due to the Federal Reserve Chairman Ben Bernanke stating that the US would have low rates as long as possible, and this of course had traders selling Dollars. However, the Tuesday session seemed lackluster at best, and could be a bit of a signal as to what traders really think.
When I talk to many of my friends out there, they all say that they are avoiding this pair, and the recent action in this pair certainly does nothing to make them want to risk too much in such an erratic market. This is especially true when you look at the headline risks coming out of the European Union, and the seeming endless amount of landmines that could be around.
“Meh”
At best, “meh” is how I would describe the Tuesday session after breaking out to the upside and smashing through the 1.3250 to 1.33 resistance level. After all, this was an area that the market struggled with since the second week of the year. The fact that the next day we simply fell suggests that perhaps there isn’t much in the way of momentum to be found. Absolutely no follow through, and this isn’t a good sign.
I also have to wonder if people aren’t starting to think about the fact that the US wants to keeps rates so low, and what that says about the economic outlook in general. Also, it should be noted that the bond markets in Europe are starting to see higher yields again, and this could signal another round of drama. All things being equal, traders simply don’t want the drama and will avoid Europe altogether if this happens. Needless to say, this dampens demand for the currency as well.
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I am waiting to see if we can bounce to the 1.35 level. If we do, I would short the first sign of weakness. However, the action on Tuesday has me wondering if we don’t even do that. If we break below the 1.3250 level – I am shorting as well. I can’t buy until I see a daily close above the 1.35 mark.