I don’t normally trade this pair very often, but I have to admit it’s been quite good to me recently. As you are aware, I have been shorting this market and although it hasn’t exactly been a massive move lower, it has been a nice gradual drift. We had broken down below and uptrend line several weeks ago, and then for me what was the no-brainer part of the trade was when we got the impulsive red candle after trying to break back above the uptrend line. This was essentially a confirmation of a trend change, as we reach all the way down to the 1.45 handle. After that, we broke below the 200 day exponential moving average, and that now becomes a longer-term downtrend by most people’s standards.
I believe that the market continues to soften from here, and we could roll over a bit during the session on Wednesday. We should find a little bit of support at the 1.40 level based upon the large, round, psychological significance of the number, but I believe the real support will be all the way down at the 100% Fibonacci retracement level which is quite often what we find ourselves reaching towards after a break of the 61.8 Fibonacci retracement level as we have done recently. That sends this market looking for the 1.35 handle.
I think that there is a bit of a support “zone” between the 1.35 level and the 1.34 level below it, so it’s only a matter time before we could get a bounce from there as well but nonetheless I believe this is a market that should provide a nice longer-term move to the downside. Quite frankly, the Canadian dollar has no support from the oil market, so this shows just how soft the Euro is overall. Ultimately, I believe that every time this market rallies, short-term sellers will step in and start selling again. Longer-term traders will simply hang onto the short position.