The EUR/USD pair tried to rally during the Wednesday session, but we found too much resistance above the 1.31 handle for the second time in three months. The 1.3150 level looks to be overly resistive, and as such it is the top of the larger consolidation zone. Is because of this that I think the Euro is primed to fall at this point time, but probably just for a short-term move.
After all, I do see the 1.30 level as the beginning of support all the way down to 1.29 or so. The market has simply bond the Euro over and over, and as such there's no point in fighting it. I still believe that even though the market is going higher, we will eventually have a flushing of the Euro. However, this is probably not going to happen anytime soon.
Volatility via the headlines
I believe that this pair will continue to be volatile based upon the fiscal talks going on in Washington DC. After all, the ECB looks more and more likely to support the bond markets around the continent, and of course traders like that. However, the members of Congress and the United States seem to be playing a high-stakes poker game with the fiscal debt talks.
If we do find ourselves reaching January 1 without some type of resolution in the United States, it will almost certainly throw the country into a recession. However, the base case is that Congress will more than likely put together some type of deal to put off the heavy decisions. Because of this, we think that the downside is somewhat limited, but is certainly there. Realistically, what will happen is the markets will send a signal to Washington before the deadline runs out. In this scenario there will be a run to the US dollar and away from anything considered risky - including the Euro.
In the short-term, I do believe that we will bounce around between 1.3150 and 1.30 or so. However, we do have a central bank meeting today out of Europe that could move the markets based upon not interest-rate announcements, but the press conference afterwards.
