EUR/USD Daily Outlook June 11, 2012

EUR/USD continued to be the focus of the Forex trading world on Friday as rumors of a Spanish banking bailout hit the trading floors around the world. As the “hopium” spread, it became apparent that the stomach by the bears to hold over the weekend was very limited, and as a result a short covering rally took hold in the afternoon hours of US trading.

The real question then remains as to the validity of the rumors, and more importantly the effectiveness. At this point, there is only one thing the market seems to want to see, and that is the so-called Eurobond. This is something that Germany has stated that it is completely against over and over, and this is the real “magic bullet” that the market seeks at this point.

The intial rally for the week could be short in duration though. This is because of the fact that the questions will remain about the Greek elections next Sunday. To make things even more interesting, the Irish are now making noise about wanting a similar deal to Spain if it gets one. The European situation is very, very complex.

1.25

The 1.25 region managed to act as support at the end of the session, and the daily candle is a hammer. This is a bullish sign, and it shows that the market already “expects” something to happen over the weekend that will be positive. This sets up a couple of observations for me already.

The market will crater if it doesn’t’ get some kind of good news about Spain over the weekend, and I believe that the officials in the EU already know this. This will more than likely push them into a corner where they announce something. The patience of the market has to be wearing thin after two years of disappointments out of the EU.

EURUSD Daily 61112

The second observation is that the move is somewhat expected. This also sets up for the strategy I am going to employ this coming week: I am going to fade any rally that come on Thursday is we see any weak price action. The market will almost undoubtedly not want to be net long before the weekend and the Greek elections. I think this is a rally that could have a day or two in it, and then we will be back to selling the Euro.

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.