The EUR/USD currency pair rallied a bit against the US dollar Tuesday as we await the ECB announcement. At this point, I think the market is more likely than not going to have to pay close attention to any statement coming out of the central bank, as people are hoping that perhaps the Europeans are going to tight monetary policy. There is almost no chance of that being the longer-term trajectory, although it looks like they are going to do a token hike or two.
The 1.04 level above should offer quite a bit of resistance, as it is the bottom of the previous consolidation area, where we had seen so much in the way of support. After all, “market memory” could come into the picture, and we also have the 50-Day EMA sitting below the 1.05 level and dropping from here. It should continue to offer quite a bit of “dynamic resistance”, but at this point in time, it’s likely that we see a lot of noise regardless of what happens next.
If we do turn around or perhaps if the ECB does not choose to raise rates, it’s likely that we could plunge. One thing to keep in mind is that the parity level is where we bounced from, and that has made quite a bit of sense. After all, the parity level is an area where a lot of psychology comes into play, so it’s not a huge surprise to see a bit of a bounce from here. Nonetheless, this is a market that I think will eventually test that level again. If we break down below that hammer candlestick that sits off parity, the bottom will follow the euro, we could go looking to reach the 0.98 level, possibly even the 0.95 level over the longer term.
As far as I can tell, this is a market that if you are patient enough, you should get an opportunity to short again. The US dollar is by far the most important and strongest currency around the world, and that continues to be the case going forward. Because of this, I think what we are looking at here is a situation where we will have exhaustion that we can get involved in. The market is one that is going counter to the overall rally, so it’s probably only a matter of time before we can buy a “cheap US dollars” yet again.
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