More Pain For The Euro Ahead

Judging by the action on Friday, I believe that the euro still has plenty of bearish pressure facing it, as even with a less than stellar jobs number out of the United States, the Euro simply could not hang onto most of the gains for the day. On top of that, the 1.30 level appears to have held as resistance, which of course is one of the basic tenets of technical analysis, "what was once the floor becomes the ceiling."

I look at this chart and recognize that most people are looking to sell the Euro, but sometimes even the most obvious trade is the best one to take. After all, I could make an argument for the fact that the 50% Fibonacci retracement has been broken to the downside via the move below the 1.30 handle, which as I would remind you was exacerbated by the European Central Bank and its surprise rate cut, and that of course is extraordinarily bearish. So that the real question is: "Where do we go from here?"

For a while now, I have recognized that the 1.28 level looked to be more supportive than the 1.30 handle. However, the 1.30 handle of course could have been reason for a bounce, as it is a large, round, psychologically significant number. The ECB of course has completely blown that out of the water, but at the end of the day the real target was 1.28 for me anyway. Now that I have the Fibonacci retracement tool placed on the chart, I cannot help but notice that the 1.28 level is at the 61.8% Fibonacci retracement, or what is known as the "Golden ratio." (See the weekly chart.)

Because of this, I believe that the Euro will continue to sell off, and I look for a continuation of the downtrend. Whether or not we can get below the 1.28 handle is not something I'm concerned about at the moment, because I think by the time we get down there we will get a bit of a bounce anyway. However, it looks as if the next 150 pips will more than likely be to the downside. In fact, I have no interest in buying this pair until we break well above the 1.3350 level at the very least, something that does not look likely to happen anytime soon. So between here and 1.28, I'm looking for reasons to continue to sell this pair.