The EUR/USD pair continued to tread water during the Friday session, stubbornly refusing to go down for any real length of time. We have seen this out of Europe before, and it does tend to frustrate those of us that understand the enormity of the problems on the continent. However, this is the low liquidity part of the summer, and as such there will be a lot of big players out of the market. This actually works in favor of the Euro, as the interest rate differential makes it too expensive for many traders to stay short through this type of movement.
However, there is little doubt that things are bad in Europe and that the continent will experience several years of economic pain ahead. The United States certainly has a stronger economy at the moment, but the fact that it's not surging forward is probably working against the Dollar a little bit.
Rising wedge
Currently, I see this pair is been in a rising wedge. In fact, the bounce that we saw late on Friday that formed a hammer seems to be sitting right on top of the uptrend line. With this in mind, I do think that this pair is still a "sell only" pair, but we need to see that specific sell signal fire off. We need to get underneath the up trending line.
Another level that has my interest is the 1.2250 level. This is because last week saw a lot of support at this level, and it is underneath the hammer from the Friday session. Once you get below that number, you have broken the bottom of a hammer, the obvious support from last week, and most importantly the up trending line from the rising wedge. I do believe that we could continue to drift higher though.
With this in mind I am more than willing to wait for the sell signal that I think is coming. I see a lot of resistance from 1.24 on the bottom, to the 1.27 level on the top. I do not believe that this market to chew through all of that. Because of this, I am willing to sell rallies that show signs of weakness, a break below the uptrend in line, and of course any weakness that shows up right around the 1.25 level. I will not buy the Euro at this moment.