The EUR/ USD pair fell rather precipitously during the trading session on Thursday as the ECB kicked off its press conference. This is mainly because the ECB Chairman Mario Draghi had suggested that there was a growing consensus on the board that rate cuts may be needed in the European Union sooner. Needless to say, this had a lot of traders bailing out at that point.
If we killed off the interest-rate differential in this pair, then you have to ask exactly why would somebody want to buy it? Granted, there will be a slightly bullish bias to this pair as far as interest rate differential is concerned, but it will become so slight that it won't really matter. If that's the case, we could be seen a change in the dynamic of this currency pair.
1.30
We managed to crack below the 1.30 handle during the session on Thursday, and this of course is a very bearish sign. However, I do see that there is support all the way down to the 1.29 handle, and as a result we aren't completely broken down yet. Nonetheless, I do think that this is a precursor of things to come, and this is especially true when you add in the possibility of failure during the fiscal cliff talks in the United States which could have people selling riskier assets hand over fist.
Because of this, I have re-initiated my bearish stance in this pair, and quite frankly I have to admit I'm rather surprised how quickly the market turned back around. We see a candle like this appear out of nowhere, it shows exactly how skittish some traders are going to be. If the bulls are willing to jump out of this trade that quickly, obviously there is little in the way of true confidence.
As a result, I am selling any rallies going forward until we break above the 1.3150 handle. It isn't until we get above that level that I am willing to start buying Euros. If we managed to break below the 1.29 handle, I think it's pretty much a foregone conclusion that we revisit 1.27 and possibly lower levels.