The Euro has pulled back just a bit during the course of the trading session on Monday as traders come back to work. The 1.18 level has been like a significant ceiling in the market over the last 48 hours, so the fact that we pulled back from there should not be a huge surprise. The 1.18 level has been important previously as support, and now it looks as if it is offering resistance. The size of the candlestick on the Friday session suggests that there is a bit of support underneath at the 1.17 level, and it is something that we have to pay close attention to.
If we were to break above the 1.18 level, then it is likely that the market could go looking towards the 50 day EMA which is currently at the 1.1866 handle. We had also recently had the so-called “death cross” form and that of course is a very negative longer-term sign. We don't have to break down, but there is a certain amount of downward pressure. The US Dollar Index will have to be paid close attention to, as the market will obviously pay quite a bit of attention to the fact that the Euro is the “anti-dollar.”
Underneath, the 1.17 level would offer support, but if we were to break down below there it is likely that the market then goes looking towards 1.16 level underneath. The 1.16 level underneath is the beginning of massive support, which I believe extends all the way down to the 1.15 handle. With that being the case, I think it is only a matter of time before the buyers return, especially as the longer-term chart suggests that this area will be very difficult to break through. That does not necessarily mean that I want to be a buyer of the Euro, but it does suggest to me that we will probably try that area. Pay attention to the yields in the 10 year note, because if they suddenly spike that could but downward pressure on this market as well, due to the widening yield differential between the United States and Germany. Either way, you can expect choppy behavior out of the Euro but that is the norm for this pair as a very rarely has easy moves for any length of time.
.png "EUR/USD")