- The EUR/USD rallied a bit during the trading session on Tuesday to test the 50-Day EMA, as well as the previous downtrend line.
- By doing so, the market found plenty of resistance, and then turned around to show signs of weakness.
- That’s not a huge surprise, since we have been in a downtrend for quite some time, and it’s likely that we would see the Euro go to the 0.98 level.
Breaking down below that level then opens the possibility of a selloff down to the 0.96 level, followed by the crucial 0.95 level. The 0.95 level is an area that we had bounced from previously, and therefore you would think that there should be a certain amount of support there. Breaking below that level then opens the possibility of a complete collapse. Rallies now will continue to look at the area above as a potential problem, and of course we also have the parity level which attracts a certain amount of attention.
Look at Rallies as Opportunities to Pick Up Cheap Dollars
If we break above the recent high, then you might have a little bit of momentum coming into the picture, but I would not hold my breath on this. Ultimately, I look at this as a “fade the rally” type of situation going forward, and therefore I think you continue to look at any rally as an opportunity to pick up “cheap US dollars.” That does not necessarily mean that it’s going to be easy to trade this market, just that we are in a downtrend, and that has not changed, even though some people would try to tell you that.
Furthermore, we have the Federal Reserve with an interest rate announcement on Wednesday, and that will almost certainly have a major influence on what happens next. The European Union is nowhere near tightening, and of course the Federal Reserve will continue to do so. Because of this, I think a lot of people will be disappointed on Wednesday, and therefore we will see the US dollar get picked up again. Even if we do rally from here, I’m suspicious of rallies and would wait for some type of fundamental reason to get long. This is not going to be so much about the European Union, but it’s going to be everything about the Federal Reserve.
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