Pair Falls Heading into FOMC

At this point, it’s not whether or not I will be selling the euro, but where I will be selling it from. 

  • The EUR/USD pair initially tried to rally Tuesday, but then rolled over quite drastically.
  • The pair crashed below the 1.02 level and continued to fall toward the 1.01 level.
  • If we break through this level, and it looks as if we very well could, then I believe that the market is going to test the parity level yet again.

Will the pair fall to the parity level?

It does make a certain amount of sense that we could fall to the parity level over the next couple of days, due to the fact that the market has been so negative and is trying to price in a very hawkish Federal Reserve. Wednesday is a Federal Reserve meeting, so although we are expecting an interest rate hike, the reality is that the statement is probably going to have more to do with where this error goes next than anything else. The one exception might be if the Federal Reserve raises by 100 basis points.

The size of the candlestick is rather important, and it does suggest that we are going lower. The fact that we are closing at the very bottom of the candlestick does suggest that there will be a bit of follow-through as well. Because of this, I do believe that short-term rallies will probably get sold into, but we do not know whether or not it is going to be something that happens right away, or if it is something that will be after the meeting.

On a complete turnaround, the euro could break above the 1.03 level, which would be a pretty big deal, but the 50-day EMA sits just above the 1.04 level, which is an area that I am paying close attention to. The 1.04 level has been an area where we had seen previous support, and now should have a lot of “market memory” in this market, giving us an opportunity to short yet again.

At this point, it’s not whether or not I will be selling the euro, but where I will be selling it from. The trend has most certainly not changed, and now it looks like we are going to drop down below the parity level over the longer term. Once we get through there on a daily close, that will change a lot of things, and it’s possible that we could go down to the 0.98 level rather quickly.


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