The EUR/USD pair fell during much of the session on Thursday as the bottom of the shooting star from Wednesday got broken to the downside. However, by the end of the session we saw buying at the 1.2715 level.
This pair has been rocked by the revelations that Germany is about to head into a recession. The European Union is now a day by day affair again, and markets will focus on one side of the Atlantic or the other and back and forth. With the “fiscal cliff” looming in the near-term, the United States has its own set of problems as well.
Spanish yields are starting to rise in the bond markets again, and this of course rates a lot of confusion and fear about owning the Euro. There really was no place to hide during the session on Thursday, as anything risk related sold off. The 1.2800 level getting broken to the downside was certainly a big event, but we still see quite a bit of reluctance to short, probably based upon the whole idea of the government been so splintered in the United States and an inability to fix the budget issues.
The candle for the Thursday session is a bit of a doji, and as a result it represents confusion. Looking at the chart, we think that a move back above the 1.28 level would be bullish, but would we even be more bullish is that we could break the top of the Thursday shooting star. Until that happens, we are not comfortable buying the Euro.
Alternately, if we managed to break the bottom of the Thursday session, we would become aggressively short this pair all the way down to the 1.26 handle. We believe that this is the most likely of pass, but there could be a bit of a bounce on Friday as traders simply will not want to carry too much risk in one direction or the other over the weekend. We do think the rallies will present opportunities to sell though, and we think that the Euro should grind lower over time.
