Danger Zone

EUR/USD’s 1.2900 - 1.3000 is fraught with danger, and is a favourite place for market-makers and hedge funds to trip stops. Yesterday, EUR/USD broke above 1.2911, hit a high of 1.2938, and then came tumbling down. In such an environment, it may be better to fade, rather than trade breakouts. If we look at the daily chart of USD/CHF, we see that USD/CHF completed the second shoulder of the H&S, and then bounced up. If …

USD/CHF breaks below yesterday’s low of 1.2182, I’m expecting it to bounce off around 1.2137, just when EUR/USD approaches 1.2979 profit-taking level. Thereafter, I think Euro will have a hard time sustaining the rally.

Today we’ll have German Zew survey at 0900 GMT, Canadian CPI at 1100 GMT and Fed officials speaking about economy at 1640 GMT (Atlanta’s Guynn, FOMO voting member is speaking) and 1700 GMT (Moskow speaking). Zew figures are likely to weigh on the Euro.

Looking ahead, Fed Chairman Ben Bernanke will speak at the Fed Symposium in Wyoming on Friday. What this means is that Euro is even more unlikely to sustain a breakout between and above 1.2938 and 1.2979. The market is now preparing for any hawkish comments that may come from Bernanke regarding the economy or interest rates. The sentiment right now is still about uncertainty.

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