The EUR/USD pair rose during the Friday session, but gave back quite a bit of the gains in order to form the second shooting star in a row. These to shooting stars were preceded by a hammer on Wednesday, and this suggests that although we have upward momentum in this market, we are starting to lose it.
This type of series of candles also suggests to us that perhaps we are running out of decisiveness to. In other words, we may enter a tight consolidation zone just below the 1.30 level. This would make sense, as the 1.30 level is a large round psychologically significant number, and there are plenty of concerns around the world right now that would have a detrimental effect on the Euro. The US “fiscal cliff” is something that could have a negative connotation for global markets all over, and as such it would take the “risk appetite” out of the currency markets.
Ironically, this would mean a run to the US dollar. This is because the US Treasury markets are the most liquid and considered to be the “safest” in the world. As people run for safety, they will need to have US dollars. In a perverse kind of way, the US dollar may benefit by the ineptitude of the U.S. Congress.
Looking forward, we need to break out of this very tight consolidation area, but it is likely that we may have trouble until we get some type of announcement about the fiscal discussions. If we can manage to get some type of agreement, this should push his pair higher as well as any other “risk appetite” currency pair. Until that happens however, we think that this market will simply go back and forth and provide short-term trades more than anything else.
If you are trading this market from the short term time frames, anything above the 1.3050 level should be treated with suspicion and probably faded. As far as the downside, anything below the 1.29 level looks like a buy waiting to happen as the area has so much support.
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