The Euro has bounced from a major support level to show signs of life yet again. By doing so, the market looks as if it is ready to try to recover, but there are a lot of noisy areas above that could cause problems.
When I look at this chart, it’s obvious that the 1.04 level is supported, but I would also point out that the 1.06 level is likely to be significant resistance. Furthermore, the 50 Day EMA is just above there and is falling, so that should offer a bit of dynamic resistance as well. In that scenario, I fully anticipate that the market will continue to find a lot of noise between the two levels, as we try to sort out whether or not the Euro can save itself. I am of the camp that I do not believe it will.
The Federal Reserve is going to continue to tighten monetary conditions, which of course strengthens the US dollar overall. Furthermore, we have to keep in mind that the overall trend is to the downside, in trends in the Forex market don’t change very often. You continue to fade rallies in this market, you continue to get paid. The 1.04 level is stubborn, but you could have said the same thing about the 1.12 level, and perhaps even the 1.08 level.
The ECB is going to tighten its monetary policy, but it is so far behind the curve in relation to the US central bank that the trajectory still remains lower. Furthermore, if we are going to get a bit of a global slowdown, the US dollar suddenly becomes much more desirable, because it becomes a “safety asset.”
If we do break above the 1.06 level, then I think the 1.08 level is going to be very difficult to break above. Quite frankly, I think this is the type of market where you look for a rally that you can fade. That’s probably what I will be doing as I close the book this weekend, but I would like to see some type of exhaustion that I could start selling into. If we do break down below the 1.04 level, then the 1.02 level is targeted, followed by the parity level. That being said, the Euro is almost always choppy.