The US dollar initially tried to rally during the trading session on Monday but gave back the gains to show signs of exhaustion yet again. The market is continuing to look very soft, and I think we are going to grind away until we can figure out the barrier at the 1.20 handle. After all, the 1.20 level is a large, round, psychologically significant figure and an area that has been important more than once. Because of this, I think that there is a certain amount of “market memory” that will come into play, as the 1.20 level could cause yet again more bounces.
If we were to break down below the 1.20 handle, then it is likely that we will drop to the 1.18 level, followed by a much bigger move. In fact, a breakdown through this level could open up the possibility of a move all the way down to the 1.10 level. Because of this, I would take a negative candlestick that closes far below the 1.20 level as a major shorting opportunity. As things stand right now, it appears that a lot of the commodity currencies look strong, so I think that given enough time we could get there.
If we do bounce from here, it is very likely that the 1.22 handle could cause some resistance, especially now that the 50-day EMA is starting to reach towards that level. The 50-day EMA has been somewhat reliable, and could represent where people will look to enter the market based upon some type of countertrend bounce. Even if we were to break above all of that, then the 1.24 handle would be the next major resistance barrier based upon the previous support that we have seen there. It is really not until we break above that level that I would consider going long, so at this point it is only a matter of time before I am going to be short of this market. In fact, it certainly looks as if we are going to continue looking at downward pressure due to the crude oil markets picking up, and the idea of overall inflation causing issues.
