We are in a downtrend, and that has not changed.
The euro fell a bit on Wednesday as the euro ran out of momentum. Having said that, the market has found enough support underneath to at least attempt a recovery. The 50-day EMA offered resistance, just as it has multiple times in the past. Whether or not we can break above there is a completely different situation and the 1.08 level above is also a major barrier. If we were to break above that level, then it’s possible that we could go a bit higher but right now there is a lot out there that could cause major issues when it comes to risk appetite.
You need to pay attention to the bond market in the United States because the interest rates have dropped a bit, so that may provide a little bit more negativity to the US dollar. At this point, the 1.08 level is where everything will be decided for the longer term. In that scenario, I think we have a situation where the market could take off to the upside for a much bigger move, perhaps reaching the 1.12 level. That being said, it would take quite a bit of momentum to make that happen, so I’m not necessarily thinking this is a situation where you would anticipate a lot of clarity. At the very least, you are probably going to be looking at a situation where traders will have to deal with a lot of volatility, something that’s getting worse in most markets.
If we break down below the bottom of the candlestick for the trading session on Wednesday, that opens up a move back down to the 1.05 level, where I would anticipate seeing a significant amount of support based upon “market memory” and where we had seen resistance. If we break down below the 1.05 level, then the market is likely to go looking even lower to the 1.04 level. We are in a downtrend, and that has not changed. However, we do not have enough exhaustion to start shorting. If we break above the 1.09 level, then it’s likely that we will continue even higher, but it’s going to come down to the bond market and interest rate expectations more than anything else.
