The euro bounced a bit on Friday as we had initially fallen to reach the 1.05 level. The 1.05 level is a large, round, psychologically significant figure, and an area where we have seen a lot of noise just below. Because of this, the market is likely to continue seeing buyers underneath, but given enough time I do think that it is probably only a matter of time before a bounce will get sold into.
When you look at this chart, you can see that we are in a massive downtrend. The 50-day EMA currently is at the 1.0861 level and falling, and more likely than not will reach the 1.08 level rather quickly. The 1.08 level is an area that had previously been significant support, so now “market memory” would dictate that it should be resisted. Any rally at this point will more than likely have to contend with that to make any serious move to the upside. Furthermore, we also have the 1.0933 level above there that has been significant resistance.
Looking at this chart, I think if we break above the 1.06 level, then we are looking for signs of exhaustion so that we can start selling. On the other hand, if we break down below the 1.05 level, we will probably go looking to reach the 1.03 level. There is a lot of noise between those two levels, and I think it will be difficult to break down all of this. When you look at the longer-term chart, that is an area that has been important more than once.
If we do break down below the 1.05 level, it is likely that it will be very slow-moving, because we are far too well supported to think that we are simply going to slice through there. Keep in mind that the European Central Bank is going to continue to be loose with its monetary policy, while the Federal Reserve is likely going to be tight going forward. In fact, Jerome Powell has said just this past week that there are going to be at least two 50-basis point rate hikes coming rather quickly. This continues to have people looking for the US dollar to rise, and the euro by default will certainly be a victim of its strength.
