By FX Empire.com

EUR/USD fell again during the week as the markets continue to worry about further deterioration in the European Union debt markets. The Italians are now front and center for the problems, and the markets seem transfixed on the Italian 10 year bonds. The auction this past week was decent, but not good. The rate of the 10 year note in Italy is now over 7%, a level that most people in the markets see as unsustainable. The bond yields simply will have to come down for there to be any real relief for the Euro going forward.

The 1.30 level has been broken below, and the market currently sits in the middle of a massive support zone down to the 1.29 level. A breaking below the lows of the week would signal a new down leg in this pair, something that is likely to happen sooner or later. With Non-Farm Payroll coming up on January 6th, there is a real chance that a strong US number could inexorably tip the scales in favor of the Dollar. The 1.25 level seems to be assumed as a future price at this point.

Further complicating any real chance of a rally is the fact that there are more interest cuts to come from the ECB in 2012. The Euro has never been below 1%, but 2012 will see that level broken to the downside. The EU is simply in far too much trouble to continue as things are. In fact, there are a lot of analysts saying this could be another “American Decade” coming. This would make sense as there is a massive “reset” going on around the world. With China looking slower as well, the Dollar will get a massive bid over time.

We like selling a break below the low from this past week, especially a daily close below the 1.29 level. We understand that there will be a lot of “noise” from the markets at times, and the trade won’t be a straight shot down. But one has to think it is only a matter of time before the Euro suffers a real setback. The trap door could open suddenly, but the situation now looks systemic, and as a result we will only sell this pair on new lows and rallies that show signs of exhaustion.

EUR/USD Forecast for the Week of January 2, 2012, Technical Analysis

EUR/USD Forecast for the Week of January 2, 2012, Technical Analysis

Originally posted here