By: Christopher Lewis
The EUR/USD pair has been very positive lately, and the biggest contributor seems to be the idea that we have bailed out the Greeks again, and all is well in the world. However, there are other things that we need to be paying attention to as well. The spread, or difference, between German and Spanish bonds have reached levels as high as 18%, and this shows just how much less the world trusts the Spanish in comparison to the Germans. In other words – not all of Europe is worth as much in the eyes of traders as other places.
The recent move based upon the Federal Reserve Chairman Ben Bernanke stating that the interest rates in the United States will stay low for a long as possible. This flies in the face of what many traders thought, as the economic number in America were getting better – many started to bet on a quicker than originally anticipated. This caused a reverse in the pair that had been falling, and we shot through the 1.3250 level as a result, which of course was resistive until then.
Retrace and support?
Of course, the most common phenomenon in technical analysis is to see resistance give way, and then be retested for support later. This is essentially what we are seeing at the moment in this pair, and many will be tempted to go long at this point. While I am a Euro bear, there is a solid technical case to be made for this at the moment, but only for the very short term.
.png "EUR/USD Daily 3/30/12")
The 1.35 level above is without a doubt resistive, and on a break of that level and a daily close, I would be long this pair for a little more semi-permanent trade. Until then I assume that we are going to continue to bounce around between the two areas. I also assume there are more problems in Europe – as indicated by the bond markets, and as such I am much more comfortable shorting this pair overall, and will more than likely be selling at 1.35, assuming there is any sign of weakness.