I'd wait for the Greece incident before you sort out what's going to happen to the EUR/USD, if they bail them out then you can safely assume the Euro is likely to drop along with the USD but if they abandon Greece then it may well actually go up.
No offense, but do you think the "moral hazard" idea applies here? Because if you believe that if they let Greece default to punish them to show other countries at risk that they should do more to "stay in line" then I believe all that's going to do is result in the same mess we had with Lehman Brothers and Bear Sterns. They wanted to show other banks they shouldn't go too far so they let them go under but they caused the entire freakin' economy to freeze when they did that. Then we had hell to pay for it. I watched Frontline documentaries on PBS and it now appears that the "idea du jour" is now to intervene rather than "let the markets rule". Whether the idea is correct or not, I believe decision makers are influenced by recent events and how they unfolded. So, I believe they'll intervene if Greece comes close too close to defaulting.
From what I know they let Lehman Brother and Bear Sterns fail deliberately and showed favourtism towards the big financial institutions like Goldman Sachs. I think you underestimate politics, western countries tend to like the public and particularly their enemies think that they are united and far more 'civilized' than others. I think it is very much the opposite and when it comes down to every person for themselves they will probably end up tearing each other apart particularly countries with already high deficits if they have to bailout greece and give more money to the EU to do it. In my opinion the politicians are just using the bailouts as an excuse to keep their friends in the private sector alive and even give them a helping hand as the competitors end up having to default because they won't help them. This is why I think the same thing will happen in the EU except there are obviously going to be some countries who have a real dislike for the problems greece brings or a simple dislike for their leaders.
OK, now I feel like an ass because Greece now says it's ready to ask the IMF for a bailout. The EUR/USD is now starting to tank and has passed the last relative low on a 4 hour candlestick chart.
Since we're now at the point where it's "make or break" next week, I anticipate some large movements which will probably stop out a lot of traders right around the time that the EU makes a decision. It looks like EU members don't want Greece to take the IMF bailout since they claim it would "look bad". So, the countries who are objecting to it may finally give them a break in the end. I read Greece cannot continue without a bailout.
I watched videos on bloomberg and CNBC. Here's what I think. Greece's president said that all the gains they get from raising taxes and cutting expenses is going down the drain because of the higher interest rates they have to pay. They want loans at lower interest rates so they can survive. So, they are giving the European Union one week to give them the loans at lower interest rates or else, they'll go to the IMF. Some say it would look like the EU cannot manage problems on their own if they don't do anything and allow the IMF to step in. And since some people are concerned some countries in Europe are not sufficiently disciplined with their budget, I'd expect the EU to bail out Greece but with a list of conditions on how to fix their budget. Oddly enough, my method to participate in a change of direction has ALMOST signaled a sell signal on the daily chart of the EUR/USD. However, my plan is to enter long positions with smaller amounts with tight stops until the EU makes a decision. Then I might go long with a larger amount of money in another account. Of course, since I know there might be lots of volatility, I might be stopped out. So, with my smaller account, I might be trading in and out until I can see an opportunity to get in long again with a larger amount. This is a very exciting situation for me since the method I developed to participate in a change in direction works much better in situations where there are large movements. And this is going to give me an opportunity to see if I can blend signals on daily charts as well as shorter term charts. After 18 months of testing ideas, this one situation might give me a good idea how I could use my method in extreme situations.