The euro fluctuated on Friday but settled on a bullish candlestick. Ultimately, this is a market that looks as if it is trying to figure out whether or not we can get back above the 1.17 level, an area that previously had been supportive. If we break down from here, the market is likely to go looking towards 1.16 level, which was a major area of support previously. If we break down below the bottom of the candlestick for the trading session on Friday, then it will more than likely open up the possibility of a move down to the 1.16 level.
When you begin to look at the 1.16 level, you notice on longer-term charts that there is a significant amount of support in a “zone” that extends down to the 1.15 level. If we were to break down through all of that, it would be an extraordinarily negative turn of events, perhaps leading to some type of meltdown as it would be a huge rush into the US dollar. Not only would you see the euro fall in that scenario, but I imagine most other currencies would get absolutely hammered against the greenback.
Rallies at this point probably find plenty of resistance above, at multiple areas, especially at the 1.18 level where we had recently seen selling pressure. The 50-day EMA is starting to break down towards the 1.18 level, which also reinforces this idea of this area being difficult to get above. Ultimately, I think that simply fading rallies will continue to work going forward, unless something changes quite drastically when it comes to the risk appetite of traders around the world.
When you look at the chart, this has been a nice grind lower and I think it continues to favor the greenback as the Federal Reserve continues to make suggestions that tapering could be coming by the end of the year, and now the markets are trying to price in this move currently. I believe that we do have further to go, but that does not necessarily mean that we will break down straight away. After all, the euro has plenty of proponents as well, so that will continue to keep this a very noisy market.