The euro has been very choppy and slightly negative throughout August, and I think this sets it up for a relatively big move. At this point, the market is currently stuck between the 50-week EMA and the 200-week EMA. As we are currently between these two moving averages, it suggests that the market may continue to be very choppy, especially as there is a significant support level underneath.
When I look at this chart, it becomes very obvious that the 1.16 level has been important in the past, so I do think that we are probably looking at a scenario in which the 200-week EMA will offer support as well. If we break down below the 1.16 level, then it is very possible that we could go reaching towards the 1.12 level after that. That was the scene of the most recent impulsive move to the upside, so it makes sense that we will see support in that region if we do break down like that.
On the other hand, it looks as if the 1.16 level will probably be somewhat supportive, and a bounce cannot be ruled out. The 1.19 level above is resistance, and as a result I think we continue to see a lot of noisy behavior heading into the month. However, if the Federal Reserve does decide to change its tapering policy, then we could see a huge collapse. When you look at the chart, we have recently made a significant “double top” at the 1.22 handle, and I think that is a lid on the market going forward.
The euro will move in direct opposition of what happens with the US dollar, as it is considered to be the “anti-dollar.” Because of this, the market will probably continue to be influenced by the tapering conversation from Jackson Hole, and the occasional Federal Reserve comment. The most recent comments have been a little bit more hawkish than anticipated, so continue to watch those statements as to where we may be going next. Looking at this chart, it certainly looks as if we have formed a huge “M pattern”, but we are struggling to get any real momentum one way or the other, which may be a bit of a reflection on the month of August itself.
