EUR/USD Daily Outlook May 28, 2012

The EUR/USD has been the punching bag lately of Forex traders. This is probably because of how resilient it had been in the face of so many problems. There had been a lot of talk about Asian central banks getting involved at the 1.30 level as they try to protect the assets that they diversified to in order to cut Dollar denominated assets in the last few years.

The 1.30 level giving way gave us a target of 1.25 based upon a large triangle that had been broken. This has been fulfilled, and now we have to decide what happens next. With all of the issues in the European Union, I am sure most of you are aware that the Euro is a currency facing a lot of headwinds. I certainly am trading it that way, and although I see the support at the 1.25 level – I refuse to buy this pair because of all of the headline risks out there.

The ratings agencies are starting to get more active as well, as the Spanish have seen several banks downgraded. The nation’s largest bank also had to ask for additional bailouts this past week as well. In a very quiet and deliberate manner, the concerns in Greece are starting to take a firm hold of Spain. If Spain falls, this thing gets ugly fast.

Two shooting stars

The last two sessions are very interesting to me. It is always a negative sign to see a shooting star at the bottom of a downtrend, as it shows just how little the bulls could support the pair. The fact that we now have two that are just sitting on the 1.25 level suggests to me that there are a lot of people pushing down on this pair. This cannot be good.

EURUSD Daily 52812

There is always the possibility that the bounce happens and we break above the top of the two shooting stars. This would be bullish, but with all of the concerns coming out of Europe at the moment, and the world waiting until June 17th for Greek election results I will simply sell the pair at higher levels if it does happen. Alternately, if the pair closes on the daily chart sub-1.25, I am selling aggressively.

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.