The euro initially tried to rally during the trading session on Friday but found that the 1.22 handle would be a bit difficult to get above, and as a result, we have pulled back rather drastically to fall all the way down to the 1.21 handle. That is a fairly big move in a market that typically does not move very much, and it is interesting to see how we had broken down below the 50-day EMA, so I think it is only a matter of time before we break down from there. It is possible that we could go down to the 1.20 handle, which is an area that I think attracts a lot of attention in and of itself.
You can see that we are forming a bit of a “rounded top”, and while that is not necessarily a sign that we are going to break apart, it certainly starts to look a little bit negative at this point. The 1.23 level above continues to be massive resistance, and if we can break above there, then it is likely that we could go looking towards the 1.25 handle longer term. Even if we do break down from here, I believe that it is still a very real possibility sometime this year. However, the odds decrease quite drastically if we break down below the 1.20 handle.
At the very least, I would anticipate that we will probably see a lot of choppiness in this area, and perhaps we are simply going to go back and forth between the 1.22 level on the top and the 1.20 level on the bottom. That would make sense, as we continue to see a lot of questions when it comes to inflation and growth around the world. Because of this, it is likely that we will see a lot of noisy behavior, and perhaps opportunities for short-term swing traders, but I do not expect to see massive moves anytime soon. A lot of people are starting to question whether or not the Federal Reserve is going to have to tighten monetary policy or at least slow down bond purchases due to inflation. I think that continues to cause a lot of noise in this market as well as many others. In the meantime, I anticipate that this incident will be a range-bound, choppy affair.
