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The EUR/USD pair tried to rally during the Friday session above the 1.30 level, but failed and formed a shooting star. This is a market that has been very overbought for a while now, and a pullback could be coming based upon the Friday session. Typically, when these shooting stars form at the bottom of a pullback, we will see further weakness going forward.
We see the 1.2750 area as significant support, and think that the market will more than likely fall to that level if we can break below the lows of the Thursday session. It is at that point time, we feel that the market will attract more buyers as the 1.2750 level is significant support on the longer-term charts.
With the Federal Reserve stepping on the gas and easing as much is possible, the US dollar itself will begin to weaken long-term as well. The Europeans have talked about several different schemes to keep their debt crisis in order, but the reality is that they haven't had to do anything with the currency itself. Rates are the same, and just by saying a few words here and there they been able to convince the market that they're serious about saving the Euro. Ironically, it's the failure to do anything that seems to be pushing the value of the currency higher.
Previously, the Euro was being punished by the fact that the European Union wasn't doing anything to save itself. However, the Federal Reserve has come to its rescue by announcing QE 3, and as such the markets are no longer in the dark about what the Fed is going to do, and have started punishing the US dollar as a result. There is still open debate on what the European Central Bank is going to do in the end, and as a result the currency has a chance to appreciate in value.
We aren't necessarily looking to sell the Euro on a move lower, as we see this is simply a chance to buy it cheaper. If we do manage to break down below the 1.2750 level on a daily close though, things would change and we would begin to sell again.