The EUR/USD pair rose for the session on Tuesday, as we continue to chug along for the 1.3150 level. The area is the top of a larger consolidation area, and as such I think there could be some resistance coming up, and the first sign of resistance will more than likely send the pair looking for a pullback.
There are a lot of different things going on right now, and but the most important over the next couple of days will be the ECB rate decision. Actually, it's not even the decision but rather the press conference after the meeting that will be parsed by traders around the world. Adding to the confusion will be the so-called "fiscal cliff” talks in Washington DC, which seem to be going very poorly. If they do not succeed in coming out with some type of agreement on the fiscal side in the United States, risk assets around the world will selloff. This pair will be no different.
Headline risks
There are plenty of headline risks out there right now, and as such it is going to be difficult to buy this pair all the way up here. I do think that it will continue higher eventually, but we need to see some type of pullback in order to get overly excited about going long now. It’s simply "far too long in the tooth" at this moment in time, and chasing the trade is the quickest way to lose money in this marketplace.
However, I do think that there is quite a bit of support at the 1.30 level, and that should catch this pair if it does fall. I think buyers will step back in at that point time, and would be willing to buy some type of supportive action in that general vicinity. However, we are heading into the most illiquid part of the year. This sets up a perfect opportunity for this pair to completely freak out like he did a couple of years ago. There was a move in December of 2008 that was absolutely ridiculous, and based upon low liquidity. We could possibly see that again. I think this pair is going to be very dangerous to trade the later we get into the month of December. All things being equal though, I do think that we get a little bit of a pullback in the next couple of sessions.