EUR/USD Daily Outlook Aug. 15, 2012

Christopher Lewis

EUR/USD had a bit of a rally during the Tuesday session, but as you can see on the charts, it failed yet again. The failure to clear the 1.2350 level will of course catch the only of many players in the market as it is a level that has both been supportive and resistive over the recent past.

The fact that we formed a shooting star also suggests to me that perhaps we are beginning to see the rally that has been forming in this pair run out of steam. There a lot of different reasons why this rally could be happening, and one of the ideas being kicked around at the moment is that it is simple short covering as the low volatility in the marketplace right now makes holding a short Euro position a losing proposition as the interest rate differential works against you.

Regardless, this looks weak and I am willing to sell the Euro anytime it shows signs of breaking down. The reality is that the situation in the European Union hasn't changed much, regardless of what the politicians trying to say as they are practically breaking their arms patting themselves on their backs.

Hammer time!

This pair also is forming what is known as a rising wedge, and this is a bearish pattern as well. The up trending line of is just below Mondays lows, and as such there are two different entries from the short side in this market right now that I see. The first one, which is the more aggressive one is to simply short this market on a break of the Tuesday lows. However, if you find yourself being more risk adverse, you can wait until the daily candle closes below the uptrend line of the rising wedge.

EURUSD Daily 81512

If the up trending line gets broken to the downside on a daily close, I feel that we will more than likely see 1.2150, and then 1.20 being tested to the downside. I simply see no reason to buy the Euro right now, even though there are many people out there willing to jump on board. There have been many cases over the last couple of years where every time the Euro rallies for more than a couple days I have been asked why I wouldn't join the upside. I think looking at the longer-term charts explains why.

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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