EUR/USD finally closed above the 1.28 level as that resistance area has been slowly chipped away over the last couple of weeks. With this being said, it is a bullish sign and we would consider the possibility of going long of this pair. However, we need to clear the next couple of minor resistance points to be completely comfortable in doing so. This does suggest however, the we would return to the consolidation area between 1.28 and 1.3150 or so.
The biggest problem with trading this pair to the long side is the fact that there are so many European debt issues right now. However, as Congress in the United States has come to the aid of Europe, it appears that the US dollar may be weakening because of the lack of cooperation between the two parties in Washington DC. Essentially, they have given the Euro a lifeline at this point time.
With the looming “fiscal cliff” looming, there are a lot of people who are concerned about the US dollar right now. Ironically, if the fiscal talks break down and we do fall over that cliff, it’s very likely that the US dollar will appreciate in value as traders will simply abandon anything remotely close to a “risk on” trade. US Treasury notes will more than likely be the flavor of the day, and this of course will push money into the US dollar.
If that’s the case, the Euro will suffer. However, in the near-term it does look like the fear is pushing the Dollar a little bit lower, and there’s also a certain amount of “hopium” in the marketplace right now that some type of deal will be worked out. After all, they would actually go over the cliff would they? To be honest, it’s not only possible, it’s very likely that the only thing that will stop it is some type of “Band-Aid” solution.
With all this being said, we think there is a little bit of upside for the Euro still, but we think that this is going to be one of the more dangerous and erratic markets going forward as we enter a low liquidity part of the year, and certainly have negative headlines waiting to come out from both sides of the Atlantic right now. A break above the 1.2850 level would be enough to get us buying this pair, just as a break below the 1.2780 level would be enough to get us to start selling again.
