The EUR/USD pair went back and forth during the course of the session on Friday, showing the market to be very tight and directionless for the day. With that, we feel that the market should continue to test the 1.35 level for support, and that level will in fact be far too important for me to ignore. If we break down below it, I think that the trapdoor opens on the Euro, and we could fall rather significantly. In fact, this would open the door to the 1.33 level, as the area has been so important and obvious to most traders out there.
The alternate scenario of course is that the 1.35 level holds as support, and that the market bounces back towards the 1.37 handle. This would essentially set up a bit of a range for the market to be involved in, and that could essentially end up being where the market in sub dawdling during the summer. After all, the summer does tend to be fairly quiet and we could see this market return to quiet days based upon the season alone.
However, it isn’t a rule written in stone.
The fact that the summer is typically quiet isn’t necessarily something that has to happen, so of course you have to keep your eyes open for specific areas. If we can get below the 1.35 level, I think that the market will fall to the 1.33 level relatively quickly, and if the 1.33 level gets broken down below, things could really get ugly at that point in time. That could be exacerbated by the European Central Bank and anything that it chooses to do about monetary policy. After all, there is a fear of deflation in the European Union, and as a result it’s possible that the Euro will get hurt by its own central bank.
On top of that, the Federal Reserve could continue to taper off of quantitative easing, which of course would favor the US dollar. If we do not get any headline that moves the market such as above, I believe that sideways consolidation will be the key.
