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The EUR/USD pair had a very eventful Friday session as the Federal Reserve Chairman Ben Bernanke gave a speech at Jackson Hole, Wyoming that addressed the possibility of further quantitative easing. The markets had expected some hints of it, and in fact there were some vague mentions of the possibility of further U.S. Treasury purchases. This is essentially quantitative easing, as it floods the markets with more US dollars.
However, we should also remember that the European Union has plenty of its own problems. There is quite a bit of division within the union, and as such it looks like a permanent solution to the problems in Europe is quite a ways away. With this in mind, it should continue to be very volatile currency pair going forward as the volumes pickup over the next couple of weeks.
There are a couple of major days coming up for the future of the Euro. September 6 is the next ECB meeting, and September 12 is Dutch elections and the expected release of a verdict in the German High Court as to the constitutionality of several key moves by the EU. Obviously, if the Germans aren't on board, there is very little left of the European Union.
The candle for the Friday session does look a bit like a shooting star, and it should be noted that we gave back quite a bit of the gains. In fact, we gave back about half of them. At one point time we were pressing the 1.2650 level, but it appears that the up trending channel has held, and we now have a shooting star on the weekly chart. This of course is a bearish sign, and it does set up the significance and importance of the 1.25 level as it is the bottom of it.
It is because of this that if we manage to break down below the Tuesday lows, we are more than willing to start selling this pair aggressively. However, we do know that the 1.27 level is the top of the "noise" above current prices, and if we do break that level we would more than willingly go long as the momentum would have shifted that point.