The euro fell a bit on Monday, reaching down towards the lows of the Friday session. At that point, we turned around to rally again, forming a bit of a hammer. This could very well end up being a couple of hammers in a row, which is a bullish sign. Nonetheless, there is a lot of noise just above that comes into the picture, so I think what we have is compression that is waiting for some type of catalyst to get moving.
The markets could be waiting for the Federal Reserve announcement on Wednesday, which will have a major influence on the US dollar. In the meantime, I would anticipate that there is very little to move this market as far as a reasonable distance is concerned. The euro itself seems a bit lackluster, but I suppose the one thing you can say about the currency is that it has been trying to build a little bit of a base at this point, as perhaps it is trying to figure out whether or not it is done selling. The market breaking down below the lows of the last couple of days could open up a move down to the 1.12 handle, which would be an area where we have seen support previously. Breaking down below that level then opens up the possibility of a move down to the 1.10 level after that. The 1.10 level will attract a lot of headline attention, as it is such a big figure.
To the upside, if we can break above the 1.1375 level, it is likely that we could go much higher, perhaps reaching towards the 1.15 handle, which is an area where I would anticipate a significant amount of resistance, assuming that we can even break above the 1.1440 area, where the 50 day EMA has been sitting. I suspect more than anything else that this will be a market that is driven by the greenback, and probably not so much the euro. It comes down to whether or not the Federal Reserve is going to speed up tapering, something that we will find out late Wednesday. Ultimately, this is a market that will probably remain somewhat subdued and see a big move one way or the other if we get a surprise on Wednesday afternoon in America, and then possibly just fizzle out into the new year.