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The EUR/USD pair had a very bullish week over the last five sessions, but managed to slam into the 1.25 level and find a ton of resistance overhead. It should be noted that we are currently hovering around the 38.2% Fibonacci retracement level, and this could be where sellers step back into the marketplace. Also, it should be noted that the summer is coming to an end, and we could start to see a serious volume pick up.
We see the 1.27 level as the area that needs to be cleared in order for the bullish trend to continue. The fact that Friday finished fairly poorly for the Euro against many other currencies has us a bit concerned about buying this pair now. The fact that this is a countertrend trade is also something that keeps us from doing so, and as such we are simply going to wait for the right signal in order to either sell, or by above that 1.27 level.
There is a considerable amount of noise above, and there are plenty of headline risks out there that could significantly impact the value the Euro. With this in mind, it's just simply going to be easier to try and trade with the trend if we get the setup. In other words, we need to sell this market not buy it.
With all the concerns in the European Union at the moment, this latest rally has been rather impressive. However, we've seen this movie before and it seems like it is only a matter time before bad news comes back into the picture. With this in mind, we think that it is very possible this pair continues lower.
Recently, we had seen a daily flag that suggested this market was going to the 1.15 level. We still stand by that thesis, at least until we get above the 1.27 area. If that does happen, at that point in time we would consider this market to have changed trends. Until then, we are going to be very quiet and sit on the sidelines waiting for our opportunity to sell.