The euro has rallied significantly during the course of the trading session on Wednesday, as we have cleared the 50-day EMA. That is a very good sign, but at this point the market still is struggling near the 1.20 handle. The 1.20 level is an area where we have seen a lot of selling in the past, and now that we have tested it, we could have a significant signal coming soon. If we can get a daily close above that one point to zero level, then it is likely that we will go looking towards the 1.22 handle. On the other hand, if we turn around and break down below the 50-day EMA, the market will then go looking towards the 1.1875 handle, possibly the 200-day EMA.
After that, we would go looking towards the 1.16 handle, which is a large, round, psychologically significant figure, and an area where we have seen a lot of support in the past. The 1.16 level extends down to the 1.15 handle, so I think it is a massive “zone of support.” At this point, we have seen one heck of a turnaround, but the real question is whether or not we can continue to go higher from here. If we cannot, then the corrective phase is going to end up rather rapidly.
Yields in America continue to favor the greenback in general, and so does the coronavirus situation. As far as that is concerned, the market could see a little bit of a pullback due to that alone. It really comes down to the risk appetite of traders around the world and the idea of the “reflation trade.” That being said, the market has gotten far too one-sided yet again, and if we do turnaround from here, then this simple corrective phase would have been exactly what the market needed.
One of the biggest problems with trading this pair is that it tends to be extraordinarily choppy. As soon as you think you have a handle on it, the market will chop back and forth. At this point, the market is likely to see a lot of noise as per usual. I do believe that a break above the 1.20 handle is probably the easiest trade to take.
