The EUR/USD pair fell hard during the session on Tuesday as the problems in Europe appear to be on the minds of traders again. This pair has essentially been relegated to a matter of which area is looking worse at the moment. The US is stronger than Europe, but the de facto position of currency traders is to buy this pair when things look up. The markets have bought every little excuse that the European Finance Ministers have made over the last several months, and as a result there has been a “hopium” bid in this pair.
The markets will more than likely find a reason to rally again, and because of this I don’t think that there is a meltdown coming, but quite frankly we have rallied far too hard for far too little of a reason. The Europeans are still failing to advance the ball quick enough, and as a result the markets have always been prone to the sudden headline.
The recent action has started to show cracks in the resilience of the Euro however. Because of this recent action, I feel that we may be starting to see the pair fall back down. But frankly, this pair is quite overvalued at the moment, and the Europeans would actually prefer it to be much lower.
Trend line
The trend line that the market has been following is been tested as we close out the session on Tuesday, and as such it looks like Wednesday could be of vital day. If we managed to close below the 1.2800 level, I think that we will continue much lower and probably down to the 1.25 level before it's all said and done.
Also, you have to remember that the European Union is suffering at the hands of a recession in several countries, and will more than likely do so for some time. Because of this, I think that eventually the Euro falls much lower, but there will always be the Pollyanna out there willing to buy the Euro every time there is the slightest chance of positive news. With this in mind, I am selling once we get below 1.2800 and aiming for the 1.25 level, as well as selling rallies. I see far too much noise between 1.30 and 1.35 above to start buying again.
