The EUR/USD pair bounced off of the 1.11 level during the session on Wednesday, testing the 50 day exponential moving average. Because of this, it appears that the market will continue to be relatively volatile. The 50 day exponential moving average is at roughly 1.12, so it makes sense that we would try to break back above it based upon the large, round, psychologically significant number of nothing else. However, I think that the real range that the market is trying to trade at the moment is between the 1.11 level on the bottom, and the 1.1350 level on the top.
With this bounce, I think we are simply seeing an attempt to normalize pricing as somewhere near the 1.250 level is what I would consider to be “fair value” at the moment. Ultimately, I think that support extends all the way down from the 1.11 level to the 1.10 level given enough time. I think that a break down below there would of course be very significant, but I don’t really think it’s about to happen.
Continued volatility
I think that this market should have continued volatility going forward, as the market is confused by the recent developments coming out of the Federal Reserve. The Federal Reserve chose not to raise interest rates, and suggested that perhaps it had to do with global market conditions just as much, if not more than the United States economic conditions themselves. Because of this, it has a lot of people concerned about global growth and of course that means that the market will favor the US dollar in general as it is considered to be a “safety currency.”
Looking at the longer-term trend, I believe that if we can get above the 1.150 level that essentially makes a strong case for a complete trend change, but I think before we have that happen there is going to be a lot of accounts damaged as there will be no clear and concise move in the short-term. Be careful, if you are going to trade this market you have to be very quick to take profit.
