The Euro has fallen a bit during the trading session as we wait for the output of the Jackson Hole symposium, and perhaps more importantly any type of comment coming out of the mouth of Jerome Powell. At this point, the market is likely to continue to see any movement by the Federal Reserve as the main driver of where we go next. The Euro had bounced and quite significantly during the course of the week, but now we are getting a bit exhausted as there is still lot of uncertainty.
The falling wedge that has formed suggests that perhaps we are going to see something explosive to the upside, but that could be changed in the blink of an eye if Jerome Powell suggests that he is even remotely hawkish. During the trading session on Thursday, several Federal Reserve Governors suggested that a more hawkish stance needs to be taken, and that of course has the US dollar strengthening. Whether or not that actually ends up being the policy is a completely different situation, but it certainly puts downward pressure on the Euro, or perhaps even more specifically: upward pressure on the US dollar.
If we turn around a break above the 1.18 level, then it is likely that we go looking towards 1.1850 region, and possibly even above there. To the downside, if we break down below the 1.17 level, then it is likely that the market goes looking towards the 1.16 level underneath, which is a significant round figure that has also offered multiple bounces, so if it gets tested again finally break down through there. This of course is a situation where traders would be very cognizant of its previous importance, and when you look at the weekly chart, a break down below that level opens up a huge 400 point move from what I can see. In other words, if we do break down below there it is likely that we would see massive momentum to the downside. On the other hand, if we were to turn around and break above the 1.50 level, then the 1.20 handle above would be targeted as it is the next large, round, psychologically significant figure, followed by the 1.22 handle which has been important more than once in the past.
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