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The EUR/USD pair fell during the session on Tuesday as the problems in Europe continue. Spanish and Italian bonds continue to spiking yield, and this of course has money running from the European Union. Because of this, the Euro continues to lose value against the relative save haven US dollar.
The gap from the weekend open suggests that we are going much lower. In fact, we've actually had a bearish flag break down that we pointed out the 1.15 level looks to be where this pair wants to head. Because of this, we think that selling this pair is the only way to go, and would do so on any rally that shows the slightest hint of weakness.
However, we are near the 1.20 level and a bounce isn't out of the question from this psychologically important area. The Euro has a plethora of problems that are yet to be discovered judging by the looks of things, and as such we are not comfortable owning this currency going forward. Granted, there will be wicked bounces from time to time in a downtrend like this, but they will simply provide opportunities to sell the euro from higher levels.
We expect the 1.20 level the offer a nice bounce as it is such a major area. We will take advantage of this bounce and sell on weakness in shorter-term time frames such as the four-hour chart. We think that this trend should continue through the beginning of next year at least, and as such this could be one of the best trending pairs in the Forex markets.
However, hope does burn eternal for the Euro it seems at times, and as such we figure some of these bounces should be relatively significant. We will look to sell mainly at the handles, as the large round numbers tend to work very well in this pair. Adding to the pressure to the downside in this market, it is widely expected that the ECB will continue to cut rates and the ease monetary policy to cut back the value of the Euro.