The Euro initially tried to rally during the trading session on Wednesday but give back the gains to turn around and threaten the 1.17 level. The 1.17 level of course has been significant support, and therefore I think it will take a bit of effort to get below there. However, the way that the market is leaning, it certainly looks as if we probably break down sooner rather than later. On a move below the 1.17 level, then the market is likely to go looking towards 1.16 level.
The 1.16 level has been massive support multiple times, and therefore it makes a certain amount of sense that we would see a bit of a fight in that general vicinity. Furthermore, below the 1.16 level is an area that extends all the way down to the 1.15 handle, as it is a massive “zone of support.” Breaking down below that would be extraordinarily negative, perhaps sending this market into a much lower area. At this point time, the market is likely to see an acceleration to the downside on that breakdown.
On the other hand, if we were to break above the 1.18 level, then it is likely that the market will start challenging the 50 day EMA, and then possibly even the 1.19 level which is right at the 200 day EMA as well. Speaking of the 200 day EMA, we recently formed the so-called “death cross”, which of course is very negative from a longer-term traders standpoint. The market has been driving much lower in a descending channel for a while now, so I think we will continue to see more of that action. However, if we were to finally break above the 200 day EMA that I might be convinced that the Euro is trying to change its overall trajectory for a bigger move.
Pay close attention to the US Dollar Index, as it has a negative correlation to the Euro, and as a result I think you will need to pay close attention to that contract. The US dollar has been strengthening against most currencies, and of course the Euro is not going to be any different. Expect choppy behavior, but it still seems as if we are more negative than positive, and I do not see that changing without some type of bigger picture item such as the expectations of the Federal Reserve tightening.
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