EUR/USD Daily Outlook Sept. 6, 2012

The EUR/USD pair rose during the session after initially falling in bouncing off of the 1.25 handle on Wednesday. However, we have an important ECB meeting and speech coming up later today which will have a major effect on this currency pair, so I only read so much into this action.

The one thing that it does tell me however, is the fact that 1.25 will be supportive. Above this area, I have been watching 1.27 level as being massively resistive and expect any rallies to struggle at that point. Quite frankly, it's probably going to take some type of announcement by the ECB in order to push prices above the 1.27 level.

My base case is that one of two things happens: either the ECB comes out and stimulates by buying bonds, which of course has already been leaked as the latest rumor, or completely disappoint. The market already expects the bond buying program, so unless it's some type of actual not count program disappointment is very likely. Also, it should be noted that unconditional or reckless bond buying is negative for currency. There will probably be a bit of a bounce on this announcement in the short term, but should see the market reprice the fact that there will be for more Euros in circulation at that point.

1.27

The 1.27 level for me is crucial to everything in this trade. If we get a daily close above the 1.27 level, I have to admit that the Euro will continue higher and aim for the 1.30 level as I buy the currency pair. However, I am very leery of this and believe that a lot of the rally over the summer has been based upon low liquidity. Now that the larger bank traders are coming back into the markets, I suspect to see a bit more conviction in the moves.

Going forward, I am willing to sell any type of weakness especially around the 1.27 level. If we manage to break down below the 1.2450 level, I would be selling this pair hand over fist
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EURUSD Daily 9612

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.