The Euro initially tried to rally during the trading session on Tuesday but gave back the gains as the 200 day EMA seems to be a bit too much to overcome. The 200 day EMA happens to be sitting right where we had seen a shooting star form a couple of sessions ago, and a poorly drawn trendline that I have on the chart. All that coming together and of course the 1.19 level, it suggests that we would of course struggle in this area. That does not necessarily mean that we are suddenly going to see the pair roll over, but a pullback would make a certain amount of sense as we had gone straight up in the air for a while.
Breaking above the top of the shooting star, well that of course would be a very bullish sign. At that juncture, I would anticipate that the market would go looking towards 1.20 handle above, which is a large, round, psychologically significant figure that will attract a lot of attention. If we were to break above that level, then obviously a lot of the headlines would push the Euro higher. This would be a breakdown of the US dollar, but we should be paying close attention to is how the US dollar is reacting against most currencies, not just this one as it all does tend to move in the same general direction.
If we were to turn around and break down below the 50 day EMA, then it is likely that we could see the market fall towards the 1.18 level, and then possibly the 1.17 level after that. After all, this is a market that had seen a sudden plunge, but just as quickly as we had been falling, the Euro has rallied. Whether or not we have “top-down” is a completely different question but clearly the 1.19 level continues to be important overall. Clearing that of course is going to be paramount for those who are looking for this pair to go higher. On the other hand, breaking down below the 1.18 level would probably see a lot of selling pressure jumping into the market and causing more headaches. With that being the case, keep an eye on where we break out of, as we are essentially stuck between the 50 day EMA and the 200 day EMA, which is a common squeeze.
