The EUR/USD pair fell hard during the session on Thursday, but as you can see bounced back above the pseudo-trend line that I have plotted on the chart. The reason I say pseudo-trend line is the fact that we have broken below it at one point during the beginning of this move higher. That being the case though, it appears that the market has in fact had enough buying power underneath it to continue going higher over the last several months but we could be seen a change in that dynamic.
The low of the session on Thursday would be in my opinion the floodgates that open for a move to the downside. Don’t get me wrong, I recognize that there is a significant amount of support below that bottom, but ultimately once we chew through that, this market could go much lower. Because of this, I am very bearish of this market at the moment simply because of the recent drastic selloff.
Interest-rate differential narrowing.
The interest-rate differential between the two currencies should begin to narrow more, simply because the Federal Reserve has announced that they believe the short-term interest rates should continue to rise throughout the next two years, going as high as 1%, which of course makes the interest-rate differential between these two currencies much more narrow than they are previously seen. However, the real question then becomes whether or not the European Union can continue to grow. Obviously, people are starting to favor the United States ever most other countries and have been for some time, the Euro has given a little bit of a free ride.
The 1.39 area was the congruence of a massive downtrend line from the monthly time frame, and as a result I had warned that we could possibly see this market pullback. It seems like we are certainly seeing that now, so I think any rise from here will more than likely run into significant resistance as well. However, I still believe that if we break the lows from the Thursday session, it would be much easier to sell even though it bounce could happen in the short-term. Alternately, if we break down, I see the 1.3450 level being targeted first.
