The EUR/USD pair fell during the session on Tuesday, and even managed to break below the 1.27 handle. Because of this, it does look like we are certain see significant weakness in this market. However, by the end of the session we saw a bounce that formed a hammer, which of course is a very bullish sign. It does look like the 1.27 level will offer support at this point.
On a break of the top of the Tuesday hammer, this is technically a buy signal in this marketplace. However, I feel that the upside will be limited by the 1.28 level, and as such I would look at it as a short-term scalping opportunity better suited for short timeframe traders. I do however see the breaking of the lows from the Tuesday session is a massively bearish sign that would have me shorting and aiming for the 1.25 level.
Headline risks continue
And there are still plenty of headline risks out there right now, and this is true on both sides of the Atlantic. You have the “fiscal cliff” in the United States which is starting to take over the headlines right now, and of course all of the debt related issues in Europe. Spanish yields are starting to rise again, and there seems to be massive confusion as what to do about the Greeks in their entire situation. There are plenty of things that will throw this market around, and it is because of this that the bounce from the 1.27 level actually makes a little bit of sense. It is simply because there are far too many headlines right now in order for this market to make one particular move.
I still have a very bearish attitude about the Euro overall, but I recognize the fact that we could get a small rally now. I would use is rally is an opportunity to sell this pair from higher levels. I truly believe that we will revisit the 1.25 level before it's all said and done, and as such is planning to trade that way.