The EUR/USD pair broke down during the course of the day on Tuesday, testing the 1.33 handle. This area has been rather supportive in the past, so would not surprise me at all to see a bounce from this area. However, I recognize that there is a significant amount of bearish pressure on the Euro in general. If we break down below the 1.33 handle, we really could take off to the downside and head to the 1.30 handle. I think ultimately this will probably happen, but it could be a bit of a fight near the 1.33 level.
The 1.30 level is going to be massively supportive in my opinion, and as a result I think this is more or less a short-term trade waiting to happen. I also recognize that we could bounce from here and find enough resistance of the 1.34 level in order to start selling again, and with that I would be more than comfortable selling off of the short-term move. At this point time, it’s difficult to imagine a reason why I would want to go long of this market, and quite frankly would probably be willing to wait until we get above the 1.35 handle.
Don’t fight the trend.
The trend is massively bearish in this case, and as a result I see no reason to fight it. I think that the market will more than likely find plenty of reasons to sell off, even if it isn’t today. I don’t see any reason buying again, unless of course we get the aforementioned move above the 1.35 handle, which would send us looking for the 1.37 level.
Ultimately, I believe that the European Central Bank will continue to have a very loose monetary policy, and with the Federal Reserve tapering off of quantitative easing still, I think the US dollar will continue to rally. The US Dollar Index broke out during the session on Tuesday, and looks like it’s heading to 84. Remember, this pair is 40% of the value of that futures contract. With that, this should continue to sell off.