The EUR/USD pair had a slightly negative session on Wednesday, trying to break above the 1.32 area, but as you can see pullback enough to form a shooting star. This shooting star isn't necessarily something that I think leads to a massive selloff, rather it simply shows the slowing down of this market, and the fact that the buyers are starting to run out of steam.
When you look at the last couple of weeks, you see one massive green candle, followed by a lot of noise. This tells me that the buyers may not be as strong in this move as one would think. Also, when you look at the longer-term charts, you see a descending triangle based upon a weekly downtrend line and the 1.28 handle. The weekly downtrend line is on this chart, and you can see that it coincides with a move to roughly 1.33 in this market. This is why I feel that the market could have some upside from here, but it is very limited at this point.
It's all about the Federal Reserve, again.
The Federal Reserve will be the key driver of this market going forward. There are concerns that they will taper off of quantitative easing in September, and that will drive the value of the US dollar higher. This is especially true if you consider how weak the economy in Europe seems to be, and that they are without a doubt a long way from raising rates or even normalizing them.
Going forward, I would love to see some type of resistive candle about 50 pips higher than where are at the moment, or even closer to that trend line. It isn't until we break above that trend line that I can even imagine buying the Euro, as I think it is way overbought at the moment. Below the 1.28 handle however, I would not only be short of this market, I would expect to hit the 1.22 handle over the course of the next several months. Right now, I am simply looking for an excuse to start selling again.