The EURUSD has benefited from a return of risk appetite as markets have priced out a double dip recession in the US on the back of strong manufacturing data and a solid jobs report. However, today’s weakness tells us that unless we see another catalyst, then downside potential exists for the pair. Concerns over the Euro-zone have started to re-emerge as sovereign debt yields are back on the rise in the region. A report that European banks have more government debt than initially estimated has unnerved investors. Meanwhile, austerity measures haven’t been met with enthusiasm by the public, which could delay the path toward fiscal responsibility, increasing the potential for sovereign holdings to become toxic. I am looking to take a small short position below 1.2725 as I see a test of support at 1.2613-50.0% Fibo of 1.1877-1.3343 as a high probability. I will build into the position with a break below with 1.2500 as a target.
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