EUR/USD is free-falling: it is now trading below the 2012 close after the fiscal cliff deal rally. It is now approaching low support.
A risk rally was seen after the US House of Representatives approved the fiscal cliff deal. The approval by the House was not priced in, and sent stocks rallying, while the dollar and the yen suffered.
EUR USD Free Falling – Click to enlarge
This risk rally came to bitter end for EUR/USD. One of the reasons is the substance of the deal: it solves only the tax issue, and not the whole cliff. A new crisis awaits in two months.
In addition, Europe isn’t doing much better. Manufacturing PMIs for December still point to an ongoing recession. Final Manufacturing PMI in the euro-zone dropped from 46.3 originally reported to 46.1 points in the final call. This included a weaker number for Spain and a higher one for Italy. Germany, the zone’s locomotive in better days, is not pulling the zone forward.
EUR/USD is now trading at 1.3167, below the 1.3170 line that capped the pair during the second part of 2012. The next line of support is 1.3130, which is quite close. The pair already dipped below 1.3160.
On the upside, the 1.3290 line was temporarily breached during the rally. The pair then dropped and temporarily held above 1.3240 before sliding. For more, see the euro to usd forecast.
