Technically we know that EUR/USD is under a great deal of pressure, however, a few non-technical observations underscore what could be a period of sustained weakness for EUR/USD:

- Back on March 8th, ECB President Trichet announced that the bank would exercise 'strong vigilance' over rising inflation and the EUR. Within 2 months EUR had rallied 8%

- On June 9th, Trichet once again said 'strong vigilance is warranted', suggesting a possible rate hike on July 7th (the next ECB meeting)

- Inflation numbers though came in lighter than expected at 1.7%

- The interest rate differential between Germany and the US reached its widest point 5 weeks ago but has since been slowly narrowing.

The old adage in trading is 'trade what you see; not trade what you know' is starting to ring ever more true currently. Those EUR bulls with macro arguments may be relying on what they expect should be good for EUR while the crowd at large is pointing a different way. Who will be right? Potentially both, but from a short-term perspective (the one that we at Aspen Trading focus on), the bears have the upper hand in here.

Update:

Back on the May 19th we wrote a piece titled ‘What Are Emerging Markets Telling Us? that focused on steel stocks of all things as a way to gain some insight on where emerging markets were likely heading. Since then, equity markets globally have been rocked and while by traditional measures equities are oversold, a new bear trend is emerging. We suggested longs at the time in EUM (the ETF that rises in value as emerging market indices drop) when it was trading at $30.10 it has thus moved modestly higher to $30.67 and is poised to move even higher.

For more from Dave, visit Aspen Trading for more updates.