The EURUSD pair had a very volatile session on Wednesday, as we are trying to front run the European Union quantitative easing situation.

After all, the ECB has an interest rate decision today, and that will have a massive effect on what happens in this pair. It’s not that anybody expects any change in the interest rate itself, but it is important to know what the next move is as far as quantitative easing is concerned. Ultimately, if they cut quantitative easing, that should send this pair much higher.

I believe that the 1.12 level is offering significant support, but the volatility that we are seeing on Wednesday as predicated mainly on rumors and innuendo, which makes for a very dangerous trading environment. Because of this, keeping a small trading position is probably the best thing you can do, because quite frankly once we get some type of firm information, the market will probably make a massive move in one direction or the other.

Small positions

I believe that small positions are an absolute necessity when this market is concerned. I do think that eventually we will continue to the upside, unless of course the European Central Bank does something completely unexpected, something like adding to quantitative easing. If they do, that would be a very negative thing for this pair, and I believe we would break down below the 1.12 level without much trouble.

Between now and then, I expect this market to be very difficult and I think that scalping back and forth is probably going to be the best way to approach what could be a very dangerous place to be. Longer-term, the market has been consolidating between the 1.05 level on the bottom and the 1.15 level above. I think that’s where the markets trying to go, the 1.15 level, but there is a lot of uncertainty between now and then.

Editor’s Note: Equity investors/traders can use the Currency Shares Euro Trust (FXE, quote) ETF to take positions in the euro without a FOREX account.  The ETF looks to track the price of the euro (EURUSD), minus ETF fee. The fund seeks to reflect the price of the euro with the shares representing a cost-effective investment relative to investing in the FOREX market.

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