Expect volatility, but I will most likely bypass this market on short term rallies showing signs of exhaustion going forward.
The euro was hammered in on Friday’s trading session as US interest rates rallied quite significantly. The market went down for a while and as a result the market was already “leaning in that direction”. The size of the candlestick is quite interesting as we saw a lot of selling pressure throughout the day and then closed at the bottom of a wider range. The 1.1750 level is one area that will get some attention considering how we bounced back from there and it has offered support.
The 50-day EMA continues to offer resistance above, and it is likely that we will see market participants see this as an area worthy of attention. The market has just made the ‘death cross’ which has made long term traders take a careful look at it and with sufficient time we will likely see an attempt to break through this support barrier. If we do, it is likely that the market will look to the lower level of 1.16 which should be strong support extending to the handle of 1.15.
On the other hand, if we were to remove the Friday candlestick it would be very bullish and this market could turn to the 50 day EMA, but I think that would happen quite easily. If we were to break above that then the 1.20 grip would be the next target from what I can see. After the jobs report, interest rates soared, causing the US dollar to attract many inflows. At this point, I think the interest rate differential between the US and Germany is going to overtake the market and push the pair down much lower.
There is also the “risk on / risk off” attitude of the market which deserves our attention, because it is a pair that will follow immediately. The US dollar is considered the “ultimate security currency,” which also comes into play. Expect volatility, but I will most likely bypass this market on short term rallies showing signs of exhaustion going forward. I have no interest in buying until we release this candlestick from Friday, and even then I should be very careful.