- The EUR/USD initially tried to rally a bit during the trading session on Friday but has given back a bit of the gain to show signs of negativity, and then eventually went negative for the day.
- The 1.06 level continues to be important, as it is a large, round, psychologically significant figure, and an area where we had seen previous resistance.
- We have now turned around the test that has support, so we will have to see if there is a significant amount of “market memory” in the picture.
The shape of the candlestick of course is a shooting Star, which is very negative, to say the least. At this point, the market is likely to then go down to the 200-Day EMA, which is closer to the 1.04 level. The 1.04 level is an area that will attract a lot of attention due to that moving average, and the fact that it is a previously important level. Breaking down below that level then could open a flood of selling, perhaps even the possibility of a move down to the parity level.
Lack of Liquidity Could Be a Problem
I found the Thursday candlestick to be rather interesting, because we had the Federal Reserve sound hockey the day before, and then the ECB suggested that there were more interest rates coming. Even after that, the Euro lost quite a bit of its strength and then ended up falling rather hard. This tells me that the Euro does not have a lot of momentum behind it and that we are getting rather close to the idea of some type of selloff. Rallies at this point should end up being selling opportunities, but I think we need to see signs of exhaustion first.
If we were to turn around a break above the 1.08 level, then it’s likely that we could go to the upside. In that scenario, it could send the Euro to a much higher level, but at this point, I think it’s a bit much to think that it’s going to be that easy to happen. Furthermore, we are getting close to the end of the year, and that more likely than not will bring in a serious lack of liquidity, and therefore could cause erratic moves in ways that we cannot necessarily be prepared for other than to either be out of the market or keep positions small.
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