EUR/USD Probes Upside

Following the rally in the pair last Friday, the EUR/USD opened the European trading week by once again poking through the 50% retracement from the all the highs last July and straddling that level for most of the day before breaking back below in the middle of NY trading, even as stocks rallied with GM (GM) and Citibank (C) being replaced in the Dow by Travelers Insurance (TRV) and Cisco (CSCO).

The pair seems to have rallied on speculation of a US Treasury downgrade, comparable to what the Pound had endured on similar rumors surrounding British debt in the beginning of the year. That being said, the Sterling has rebounded off its January lows 30 big figures and it is reasonable to imagine a similar fate is awaiting the USD.

We will watch the 38.2% level and 200 day moving average to provide the retracement targets and the ~50% area as resistance (and above to the recent highs) in case the long Euro positions take another shot to the upside.

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