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The overall downtrend has not changed, despite the fact that the euro has been fighting.
- The EUR/USD currency pair rallied ever so slightly Monday as we continue to see a lot of noisy behavior.
- The market will respect the 1.03 level going forward, as it has multiple times.
- The question now is if we either break above there or finally pull back.
- At this point in time, it looks like the euro is still threatening the 1.03 level but cannot seem to get above there. In other words, I would not be surprised at all to see this market pullback from here, using the 1.01 level underneath that support.
Approaching Parity
If we were to break down below the 1.01 level, then it opens up the possibility of the euro going down to the parity level. The parity level is an area that will attract a lot of attention, and if we were to close below there on a daily candlestick, it’s likely that it would attract a lot of interest by algorithmic traders, which would then be forced to start shorting this market again. At that point, the market could go down to the 0.98 level, possibly even the 0.96 level after that.
The 50-day EMA is sitting just above the 1.04 level, which is an area that I think in and of itself will attract a lot of attention also. That’s an area that had been supported quite aggressively in the past, so the “market memory” in that area should come into this picture. The market bouncing from here could be a good thing for the short term, but it should only offer “cheap US dollars” going forward. I think at this point we are more likely than not to go into a more of a “fade the rally” scenario than anything else.
If we were to break above the 1.04 level, that would obviously be a very bullish sign, perhaps opening up the market to reaching the 1.06 level. I don’t see that happening very easily, but it is always a possibility. Pay attention to the 10 year yield, because it can give us an idea as to where the US dollar may or may not go. The overall downtrend has not changed, despite the fact that the euro has been fighting. Ultimately, we will continue to see a lot of demand for dollars over the longer term.
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