We may see a little bit of short-covering heading into the jobs report.
The Euro initially tried to recover on Thursday but then turned around to show signs of weakness. Ultimately, the 1.02 level is an area that had been important previously, so now that we are trying to break above there, it’s interesting to see that the sellers have stepped back in. This is a market that has formed a bit of a potential inverted hammer, so it’ll be poignant as to which direction we break at this point.
If we turn around and break above the top of the candlestick, then it’s possible that the market could rally all the way to the 1.04 level. This is an area that previously had been a massive support, so a lot of “market memory” could come into play in that area. I would anticipate seeing a lot of sellers in that general vicinity, as there is a strong downtrend. The 50 Day EMA is now slicing through the 1.06 level and driving even lower. I do believe that the 50 Day EMA is going to reach the 1.04 level sooner or later, perhaps sooner being the keyword.
All things being equal, the Euro has a lot to worry about, not the least of which will be the fact that the ECB cannot tighten monetary policy anytime soon. Yes, there may be a couple of token interest rate hikes of 25 bps, but that’s about as aggressive as they will get. On the other hand, the Federal Reserve has already promised at least 100 bps of rate hikes over the next couple of months. Because of this, I think it’s probably more likely than not that we see market participants favor the greenback over the longer term.
We may see a little bit of short-covering heading into the jobs report, but quite frankly it would take a pretty shocking turn of events in the United States from that announcement to suddenly have people buying the euro. Yes, it will have to be volatile around 8:30 AM New York time, but beyond that, we should see the longer-term downtrend reassert itself on any attempt to recover. As for buying, I don’t really have a situation where I would do so, at least not until the Federal Reserve steps away from its tightening cycle, something that it simply cannot do or will have lost its credibility completely.