EUR/USD Forecast: Euro Rallies but Gives Up Early Gains

A back and forth short-term range-bound system should be employed until we get some type of clarity, something that I do not see in the short term.

The euro initially rallied during the trading session on Friday but found trouble near the 1.2150 level to turn things around and start dropping again. This is a bit of a shooting star, which sits at the previous shooting star. The 50-day EMA is sitting just below, offering a bit of support as you can see. However, the 50-day EMA is very flat, and that suggests to me that we are going to remain in a very choppy market, as the range-bound traders have to be loving this.

Underneath, the 1.20 level offer support that extends down to the 1.19 handle. Because of this, I think that there will be plenty of buyers underneath and that region offers an opportunity to get long. However, if we break down below the 1.19 level it is likely that the market could go down to the 1.16 handle. On the other hand, if the market were to break above the 1.22 handle it could send this market looking towards 1.23 level. The 1.23 level has a massive amount of resistance sitting above that extends to the 1.25 handle, and I think it is going to take something rather special to make the euro take off.

In general, I believe that this is a market that is going to fluctuate and flatten out right along with the 50-day EMA, possibly even in a 200-point range, because we have recently seen the 1.22 level offer itself as resistance as well. In other words, the range has been tightening, but I think this just shows how confused the market is as to where to go next. The bond yields in America continue to rise, and that does make the US dollar a bit more attractive. At the same time, you have to worry about the EU shutting itself down occasionally, as there have been rolling lockdowns.

However, the stimulus continues to weigh upon the idea of the dollar, so I think there will continue to be a lot of confusion and noise more than anything else. A back and forth short-term range-bound system should be employed until we get some type of clarity, something that I do not see in the short term. In fact, the candlestick for Friday is a good proxy for the overall attitude.

EUR/USD chart

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.