EUR/USD Daily Outlook Aug. 14, 2012

EUR/USD continued that the upward pressure as the 1.2350 level was broken during the session. However Monday also saw half of the gains evaporate by the time the Americans went home. The candle shows a bit of exhaustion, but in the big scheme of things the Euro does look like it's trying to grind its way higher.

A lot of this will be based upon the eternal hope that seems to come along with the Euro. However, there is talk of forced shorts in this market due to low volatility and a negative swap. Being short the euro, you're going to lose 2% over the course of a month if we don't necessarily move anywhere. This of course is exactly what the markets done and we are in the quietest part of the trading year.

Rising wedge

From what I've seen recently, it looks like this pair is trying to form some type of rising wedge. This is normally a bearish sign, and is a confirmed sell signal if we break the bottom line of the ways. It wouldn't surprise me too much to see this wedge continue all the way up to 1.25, but I believe that once we get close to that area of the real resistance will start to sell into the market.

Let's be honest here: most of the rally that you see in the Euro is based upon things that people think are going to happen, and not reality. Is because of this that the market will continue to have sessions that see the Euro suffer horrific losses as people don't get what they want. One such example that could come up: the Federal Reserve doesn't add to its monetary easing policy in September.

If that were to happen, this pair would collapse. One of the main reasons to be long this market is the interest rate differential. In fact, it's exactly what's causing the hedge funds the close out their short positions. If the Federal Reserve doesn't look like it's willing to add to quantitative easing, that will blow that out of the water.

EURUSD Daily 81412

I don't necessarily think that the Federal Reserve is going to disappoint the markets; rather I think the fact is that a lot of the big players aren't in the market right now. I will be watching for break of the bottom of a rising wedge in order to sell this market. I also will be more than willing to sell weakness as we get closer to 1.25 or so. I see significant resistance all the way up to 1.27, and as such have absolutely no plans on buying this market.

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.