The euro initially tried to rally on Monday but pulled back a bit from the highs. In fact, by pulling back the way we have, the market is forming a shooting star. The shooting star is a negative sign, and it suggests that the downtrend is still very much intact. This is not a huge surprise, as the 50-day EMA is sitting right here, and it does have a history of being followed.
The 1.08 level above is a significant level on the charts, as it had been rather important support previously. Because of this, one would think that selling pressure should show up there, and we may have gotten as close as we are able to in the short term. If we break down below the lows of the Wednesday session, then it opens up fresh selling, perhaps for the euro to drop to the 1.06 level, possibly even down to the 1.04 level over the longer term.
That being said, keep in mind that the euro does tend to be very sluggish and choppy, so you are going to need to be very patient with your position. This does not mean that we cannot pick up momentum, just that typically this pair doesn’t move very fast. It iss likely that we will see more of a grind lower to our target prices. Given enough time, it’s very possible that the euro could go down to the parity level. That’s not something that happens overnight, but it does seem to be a reality at this point in time.
Alternatively, if we turn around and break above the 1.09 level, that might be enough to make this market continue to go higher. In that scenario, we could see the euro recover all the way back to the 1.12 level, but it would take a Herculean effort to make that happen. I believe at this point it is more or less a “fade the rally” type of situation than anything else, so the candlestick from the Friday session does not surprise me in the slightest. The US dollar continues to be the favored currency around the world, despite the fact that there has been a bit of a pullback in the US Dollar Index. I have no interest in buying this pair in the short term.
