EUR/USD was the focus of the world’s attention on Friday as the EU summit was coming to a close. The market was waiting to see what could come out of Brussels, and the result was enough to calm nerves in the stock markets, but not necessarily in the bond and currency markets. The EUR/USD pair ended up posting a doji for the day, and didn’t look overly impressive by the end of the session. The market was hoping for larger fiscal unity, and certainly didn’t get it. The S&P ratings agency has already said that they will downgrade 15 of the EU countries and the EFSF bonds if fiscal union wasn’t accomplish. Because of this, there is a real threat of a downgrade over the weekend, or early in the week. If this happens, we could see a strong move to the downside.
The 1.30 to 1.31 area is massively supportive, and we think that the level will be a tough one to break down. If it happens, this would be a massively bearish development that would have us selling aggressively. The upside looks somewhat contained as the 1.35 is resistance, and the 1.40 above that is even stronger in our opinion. The fact that the day ended up fairly flat is cause for concern by the bulls, and this weekend could produce several problems for this pair. Without the bulls willing to buy this pair up, there is a downside bias at the moment still.
The outlook for Europe is still recessionary, and the growth of that area is highly in doubt. So even without the EU summit concerns, there is still reason to think the Euro might be in trouble. We have been selling rallies, and we think this is still the way to go, as long as we stay under 1.35 on the daily chart. The breaking of that area would be what it takes for us to buy presently, as the headlines will continue to come out and make moves in this pair happen out of the blue.