EUR/USD Forecast December 26, 2012, Technical Analysis

EUR/USD initially rallied during the shortened Christmas Eve session on Monday, but failed to hold above the 1.32 handle and formed a shooting star. The market has produced three shooting star is the last four sessions now, and as a result we believe that a fall from this area could be coming.

However, we see the 1.3150 level as a significant support level at the moment, and because of this we are not ready to start selling quite yet. In fact, we think this is a bit of a soft “zone” that should produce enough support that we really need to see a move down below the 1.3100 handle. On a daily close below that number, we believe that you could move as low as 1.2900 in the relatively short term.

One of the biggest drivers of this pair will without a doubt will be the so-called “fiscal cliff” talks that are going on in Washington DC currently. This is a “risk on” type of pair, and as a result we will not see this pair gained much until that situation gets resolved. In fact, as long as this discussion continues, we think that there will be some very strong headwinds against gaining in most risk related currencies.

Judging by the shape of these candles however, this correction could be coming fairly quick. We don’t necessarily look for this market to meltdown, simply that we will need to see a quick correction in order to wake up Congress, and get them back to work. This happens quite a bit, as the stock markets will suddenly fall when things aren’t quite right, and then suddenly the congressional members can get something together and propose legislation. We think this is essentially what’s going on right now, and once we see some type of resolution, we could see this pair skyrocket as the bullishness would undoubtedly return to the Euro and other risk related commodity currencies out there. With that being said, we think this is going to be a quick plunge down, followed by a more sustained move higher.