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EUR/USD ended up having an extremely bearish week with Friday being the retest of the 1.23 level, showing the pair is without a doubt ready to continue lower. If you've been following our forecasts, you know that on the daily chart we see a potential bearish flag that has now been confirmed, and looks set to push this pair down to the 1.15 level.
While the 1.15 level does seem a bit extreme, you must keep in mind that the pole of the flag measured 1000 pips, and we had a breakdown at roughly 1.25 or so. This measurement isn't bound by any particular length of time, and this could be a move measured out for the next couple of years for that matter. Nonetheless, this suggests to us that the pair is going to continue to be a "sell on the rallies" type of market.
The reaction to the measures taken at the last European Union summit was short-lived to say the least. This has been the way the market has reacted, a quick knee-jerk reaction that is Euro positive, only to turn around and sell the currency off again. With this being said, it just seems that there is far too many reasons to think this pair will continue much lower.
We simply do not buy the Euro at the moment, and would have to see a clear break of the 1.27 level to even consider it. On the other hand, most bounces that we see in this market will simply be shorted once the pair shows weakness again. Fundamentally, the European Union is an absolute mess and appears to be rudderless in this crisis right now. With so many factions arguing, and the fact that Greece is probably still leaving the Euro, we think that it is far too dangerous of the currency to be long of. A break of the weekly lows would have us selling and aiming for the 1.20 level, with full expectation that it will give way as well. We believe that we are in a cyclical downtrend, and it is going to take something pretty special to change that.