The market has been very choppy and compacted over the last couple of weeks, so that’s another reason to think that we will get some type of consolidation break out soon, as markets cannot compress forever.
The euro initially tried to rally on Monday but has pulled back from the highs as the 50-day EMA came into the picture. The US dollar continues to strengthen in general, and that will show itself here. Furthermore, we are trying to figure out and resolve what’s going to happen with this “rising wedge” that we see on the chart. At this point, it looks like we could very well break down below the bottom of the uptrend line.
If we do, that will open up the possibility of a move down to the 1.04 level, where we had bounced from previously. That’s an area where I would expect to see a lot of support, but I also would anticipate that we may crash through this next time. After all, we are in a downtrend anyway and there are a lot of concerns around the world that continue to drive the value of the US dollar higher.
The alternate scenario is that we break through all of the resistance above, but that would take a move not only above the 50-day EMA, but through the 1.08 level, and then eventually the 1.09 level, which is the top of the overall “zone of resistance” that I see above. If and when we can clear all of that, then the euro has a real shot at going back to the 1.12 level. However, the ECB seems to be reluctant to become overly aggressive with its hawkish stance, and that is part of what we are seeing play out in this market right now.
The market has been very choppy and compacted over the last couple of weeks, so that’s another reason to think that we will get some type of consolidation break out soon, as markets cannot compress forever. When you look at the longer-term chart, you can see that even though we’ve had a nice little short-term rally, it is still but a blip on the radar when it comes to the overall picture. If we do break down below the 1.04 level underneath, the 1.02 level will be the next target, followed by parity. It’s worth noting that a lot of experts believe that parity will be seen sometime this year, so unless the ECB changes its tune completely, I would anticipate that as well.