By Boris Schlossberg
The EUR/USD dropped through the 1.2500 barrier in early Asian trade after weaker than expected Australian GDP numbers triggered a dollar rally taking out stops at the key psychological level. The 1.2500 barrier was heavily defended by option sellers over the past few days, but once the level broke EUR/USD quickly tumbled to 1.2457 before yet more option related defensive buying ahead of the 1.2450 strike propped up the pair.
As we wrote on Monday, “Once the 10 AM New York option cut passes, it will be interesting to see if the EUR/USD tries to target the 1.2500 handle again. The pair has managed to hold support at that level twice but it still remains a magnet for euro shorts looking to run stops at that barrier. We continue to believe that unless EZ officials begin to make quick progress on the issue the deteriorating economic conditions in Eastern Europe threaten to explode into a full blown financial catastrophe. With the pair so tantalizingly close to the 1.2500 barrier it appears to only a matter of time before that key support level gives way.”
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