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The EUR/USD pair fell during most of the session on Wednesday, only to find the 1.30 level was fairly supportive. The candle at the end of the day ended up being a hammer, and this of course shows signs of support and strength. The move been fairly parabolic over the last couple of weeks, so we hoped to see a stronger pullback than what happened. Because of this, it does look like the buyers are going to push prices much higher though.
Nonetheless, we can fight the tape and it does look like buying is probably the only move we have at the moment. If prices fall below the 1.30 level, we could see a move down the 1.28 and fairly short order as this would be a "hanging man", but this seems somewhat unlikely at the moment.
With the Federal Reserve announcing it expanded quantitative easing last week, this really has given this move quite a bit of fuel. However, it must be kept in mind that eventually the European Central Bank will have to do easing of its own. Europe is in a recession, and needs a lower valued the Euro in order to remain competitive.
This being said, the ECB has also admitted that it will buy as many three-year bonds as it needs to in order to help prop up governments that asked for help. While this initially helps the value of the Euro, eventually this means massive quantitative easing. Is because of this that we feel although there is short-term bullishness in this market, we will more than likely see a massive move lower once all of this starts.
Quite frankly, this market has been a matter of what the market is focusing on in that given moment in time. Is it going to be the Federal Reserve and its quantitative easing programs? Or is it going to be the European Union and its seemingly endless ineptitude when it comes to fiscal problems? This pair has literally become a trading vehicle for those two questions. Because of this, you can expect plenty of volatility still, and we do think that although prices could go higher in the short-term, eventually we will see a massive cratering.