The Euro initially fell during the trading session on Wednesday, but then turned around to show signs of life again. We continue to find the market at “fair value” being closer to the 1.11 level. If we were to break above there, then we start to dig into the “M pattern” that we had formed to cause the most recent breakdown. The 200 day EMA is just above, and at this point it’s likely that the level will continue to hold as resistance. Quite frankly, I like fading rallies in this pair as the Euro has been in a downtrend for a couple of years now.
To the downside, if we were to be unable to break down below the 50 day EMA, then the market probably goes down to the 1.10 level, followed by the 1.09 level after that. We have been in a downtrend for so long it’s difficult to imagine a scenario where we suddenly turn around as very little has changed fundamentally, with the exception of the Federal Reserve stepping on the sidelines. That means that they won’t be cutting rates any further, so that should in theory strength in the US dollar, while the European Central Bank continues to add to their monetary policy loosening, and therefore it should continue to put downward pressure on the Euro itself.
The ECB is very unlikely to be able to change policy anytime soon, as there are a multitude of “zombie banks” in the EU that the central bank has to pay attention to. Because of this, I believe that the market does continue to drift lower and although the European Union has shown a little bit more stability as of late, we are still a far stretch from changing the overall attitude and therefore it’s likely that the market will eventually start selling off again, but as you can see from the last couple of years, this has been a very choppy trend to the downside. Because of this, I suspect that it’s only a matter of time before sellers come back into make their presence known. With that in mind I don’t have any interest in trying to get too cute with this market, on simply looking for signs of exhaustion that I can jump on as that has worked out so well over the last couple of years there’s no reason to think that anything changes.
