- The euro has gapped lower to kick off the trading week, as we continue to see a lot of volatility in this pair.
- As it is likely that we will eventually see some type of trade spat between the United States and the European Union, I suspect that the euro is living on borrowed time any time it rallies.
- Furthermore, we also have to keep in mind that the European economy has barely grown over the last 20 years, while the US economy has doubled. Then short, there’s no real reason to buy the euro against the US dollar for a longer term trade.
Sure, there will be an occasional short-term rally in this market, but as things stand right now, the fundamental simply do not line up for a protracted uptrend. In fact, I suspect you have a situation where this market will eventually try to rally, but that should end up being a nice shorting opportunity at the first signs of exhaustion. After all, we have been in a downtrend for quite some time, and there’s no real reason to think that it’s about the change anytime soon. Ultimately, this is a market that I think goes to the parity level before it is all said and done.
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Technical Analysis
The technical analysis for this EUR/USD pair is obviously quite bleak, but it is worth noting that the market recovered quite nicely from the initial gap lower on the open for the Monday session. That being said, the 50 Day EMA currently sits right around the 1.0425 level, and after that we see the 1.05 level offering a significant amount of resistance. It is not until we break above that I think the market could pick up any type of momentum, and it’s really not until we break above the 1.06 level that I think anything will be sustained.
To the downside, if we were to break down below the level 1.02, that opens up the door to parity, something that this pair seems to be destined to reach. In fact, I’m starting to read some highly respected research that suggests the euro could even drop down to the 0.90 level at this rate. I’m not calling for that yet, but I certainly think parity is not out of the question.
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