Late of Friday, the EU had several countries downgraded by S&P, and as a result not all of the market reaction is in the chart. In fact, only a handful of banks were online when this was being announced. The biggest hit was that the French were cut down on notch. The market has been very weak for the Euro in general, and it has fallen against most other currencies.
The weekly candle that formed is a shooting star at the bottom of the downward plunge, and it currently sits on the vital 1.26 support level. The breaking below that level would send this pair much, much lower. The 1.30 level should continue to keep a cap on gains in this pair, and to be honest – it is looking less and less likely that we will even see that level.
The downgrades weren’t necessarily unexpected, but the market still sold off in the pair as the rumors came out earlier in the Friday session until the actual announcement was made. The pair should continue to face serious pressure, and most of those countries that were cut, including Spain and Portugal, we also put on negative watch as well, and signaling that more downgrade cuts could be coming.
The candle suggests that a couple of different things could happen. The rallies that could appear in this market are more than likely going to run into significant selling on the shorter time frames, as it has lately, and the market could also enter a brutal selloff if we get below the 1.26 level. Either way, there are few positive scenarios that we see going forward for any length of time.
With this in mind, we are selling a daily close below 1.26, and going to aim for 1.19 as a final destination. This move is what we expect quite frankly, but at these extreme levels, whipsaws can appear as we hit serious support. Because of this – the daily close sub-1.26 is absolutely vital for confidence. Rallies will also be sold by us as well, but those trades will have to be based off of daily charts showing weakness below the 1.30 level.
EUR/USD Forecast for the Week of January 16, 2012, Technical Analysis
Originally posted here
