- The EUR/USD initially dipped a bit during the trading session on Friday, only to turn around and show signs of life again.
- We have broken significantly above the 1.06 level, which is not a huge surprise considering that Wall Street almost always finds a reason to celebrate and go “risk on” in every announcement.
- The jobs announcement of course will be any different, so it’ll be interesting now to see how long this rally lasts.
The market breaking above the 1.06 level is bullish, but there is still plenty of noise just above that expense of the 1.07 level to cause some issue. If we do break above that area, then it’s possibly a sign that we are going to go to the 1.08 level, perhaps even above there to the 1.10 level. On the downside, if we break down below the bottom of the candlestick then we will probably test the 50-Day EMA, right along with the 200-Day EMA. The market is about to see the so-called “golden cross” when the 50-Day EMA breaks above the 200-Day EMA. That’s a longer-term “buy-and-hold” signal, so that does make for something to keep in the back of your mind.
US Dollar Likely to Strengthen
If we were to turn around and break down below those moving averages, then it’s possible that we could go to the 1.05 level, maybe even down to the 1.01 level if we really start to break down. This would obviously be a major “risk off move”, as the US dollar would strengthen in that scenario. As traders try to protect their wealth, it does make a certain amount of sense that they will head back into treasuries if we get some type of major bad move. In the short term, it seems to look as if people believe that the Federal Reserve might be willing to shift its monetary policy, but quite frankly we are light years away from that happening.
The European Central Bank is also very hawkish, but now it’s a question as to who blinks first. At this point, people are assuming that the Euro is going to prevail, but when you look at the longer-term charts you can see that the rally, although impressive, is still unique in comparison to the overall downtrend that’s been in place since the Great Financial Crisis.
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