The euro rallied quite significantly on Wednesday to test the 1.1350 level. This also is where we had recently seen quite a bit of importance due to the fact that it was the bottom of the overall downtrending channel that we had recently broken through. At this point, market memory suggests that this could be a bit of a barrier to overcome, but it is difficult to imagine a scenario where we simply slice through it like nothing happened. Even if we did, there are plenty of areas above that could cause resistance, so I am looking for signs of exhaustion to start selling.
If you squint, you may be able to see that there is the possibility of an ascending wedge being informed, which is a negative sign as well, assuming that we break down below the bottom of it. Some traders will look at this as a market structure turning around to form a “higher low”, but we have not broken out to make a “higher high” quite yet. Because of this, I think it is still a little bit difficult to get overly excited about this market, but I do think that soon enough we will get a signal to start selling again. The candlestick for the session on Wednesday is very bullish, as it is a candlestick that closed at the very highs of the session. This is a scenario where there is typically some type of follow-through, but we do not necessarily count on that.
This is a countertrend rally as things stand right now so I do not have any interest in trying to get too cute with this market, and I will simply wait for an opportunity to follow the overall downtrend. The 50-day EMA currently sits at the 1.1459 level, and is racing towards current price action. Because of this, it is very likely that we will continue to see downward pressure given enough time. I think by the end of this week, we will probably start to approach a nice selling opportunity. For short-term traders, if you can see this market break above the 1.14 handle, it may be a little bit of a pop higher, but I would not get overly aggressive.
