EUR/USD Daily Outlook July 16, 2012

Christopher Lewis

EUR/USD rose during the session on Friday, as the 1.22 level managed service support. The bounce will have caught some people by surprise, but it really isn't necessarily that shocking if you look at the charts over the last couple of weeks. No market goes in one direction forever, and this currency pair certainly is no different. With the recent selloff, we have seen the pair shed 500 pips over the course of two weeks. So when you see something like this, a bounce is almost assured at one point or another.

It is interesting that the pair managed to recover all of the losses from the Thursday session, but failed at the first sign of resistance to break through. I cannot help but feel that this rally is simply a short covering rally, and as a result will only serve to offer higher prices from which to sell. Certainly, nothing substantial has changed in the euro zone to make anyone believe something a change, and even though there was a "risk on rally" on Friday, it's hard to believe that market sentiment has suddenly done a 180.

Looking to sell

The market is most decidedly bearish, and it is only the amateur traders that are looking to buy at this point in time. Do not be fooled, this move was nice during the Friday session but it hardly constitutes a trend change. In order to profit from the upcoming move in of this pair, I have decided to simply make this as simple as possible: I am going to sell this pair at the first sign of weakness that coincides with a major handle. In other words, if we go to the 1.23, 1.24, and especially the 1.25 handle and we see a weak candle, I will not hesitate to sell as I believe that 1.20 is the ultimate destination for this leg of the downtrend.

EURUSD Daily 71612

It should be noted that there was a bearish flag that broke down just above the 1.25 level a couple of weeks ago, and it suggested a move down the 1.15 before it was all said and done. I firmly believe that this is where we eventually end up, but as with the Euro hope seems to spring eternal, so we will certainly have bounces from time to time - all of which I plan to sell.

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.

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