The EUR/USD pair has been volatile over the course of the last 6 months or so, but the one thing that you cannot deny is that we’ve seen a lot of bullish pressure. At one point, we had seen the market break above the vital 1.15 handle, and for me that’s a very positive sign. In fact, as you can see on the weekly chart, I have a bullish flag marked, and I think we are going to break out to the upside during this quarter. I think that we will probably see a significant amount of resistance above, particularly near the 1.21 handle, but I expect that will be broken during the first quarter.
I think pullbacks will continue to be buying opportunities, at least until we would breakdown below the 1.15 handle, which would be a negative sign. At that point, I anticipate the market will go looking towards the 1.13 level. With that in mind, I look at the bullish flag as the most important indicator for US dollar strength or weakness longer term. After all, the EUR/USD pair is over 80% of all Forex transactions, so it has a bit of a “knock on effect” against the USD everywhere else.
I believe that the market is trying to assess whether we are going to have a pro US dollar year, or an anti-US dollar video. In general, I think the buyers are starting to get a bit restless, but given enough time I do think that the buyers will break out. If we were to break down below the 1.13 handle, that would be catastrophic, and the pair would probably go looking to fill the gap near the 1.06 level underneath. By being patient, the market should tell you which direction it wants to go.