Grappling With the EUR/USD Pair

I have to admit, I don't quite understand the dynamics or fundamentals right now between the Euro/Dollar.

As for the Euro, today Portugal issued 6 month treasuries at an interest rate of nearly 5.12%! The last issuance from Portugal was 3 weeks ago at 2.98% which was stunningly high, this is nearly 72% higher in 3 weeks. It's more then clear that Portugal is expected to default and come begging for money from the E.U.'s bailout mechanism.

It's also clear by the way elections are going in Germany that anyone who supports more EU bailouts will not be elected. This leaves a very big problem should Portugal need a bailout and a catastrophe should Spain and Italy also need bailouts (which is not that far fetched). Yet the Euro is higher.

On the US side, we're facing a government shutdown (including the IRS!)  if a consensus on the budget that was supposed to have been passed last October isn't passed by Friday. Although the last minute game of chicken here in the US is getting down to the wire, I'd think that it would be unlikely that a shutdown will occur and if so, not for very long. There's also the issue of the debt ceiling which by most accounts will be breached, especially as tax refunds start to flow out of the treasury. Again, politicians allowing the debt ceiling to be left in place and the effect it would have as the US would be in full fledged default on debt again seems highly unlikely, (I know I'm not doing justice to the totality of the fundamental issues, but these seem like the more pressing immediate issues in a nutshell) yet the Euro breaks out and the Dollar breaks down.

There are some hints though as to which way this is going to go.

 While the Euro (FXE) did breakout through the local highs...

The Dollar did not break down through the local lows. The Euro gained more then the Dollar lost if that makes sense.

FXE

The FXE 15 min chart is negative

 The Dollar 15 min chart (UUP) is positive

 FXE 5 min chart is negative...

The dollar 5 min chart is positive.

So are we seeing a false breakout n the Euro? Right now it appears that way. It also appears that the US fundamental issues are expected to be resolved (from looking at 3C).

I guess we'll find out son enough, however, should FXE fail to hold that breakout, there's likely to be a decent swing short setup. Failed breakouts tend to fall pretty quick, at least on a swing basis. You might want to set an alert to let you know if that happens and you might consider the short trade on the Euro (FXE, currencies, options.)

If any of our economy buffs want to comment on something I'm missing fundamentally, feel free to send me an email.