Underneath the 1.16 level, then we have a clear sell signal, but above 1.1750 level it is possible we reenter the action that we have seen for several months.
The Euro has drifted lower during the bulk of the month of September, reaching down towards the 1.17 level. That being said, we are sitting on top of a major support level that extends down to the 1.16 level. That being the case, I think that the month of October should be rather important, as it could give us a bit of a “heads up” as to where we are going on a longer-term timeframe.
If we were to break down below the 1.16 level, it is very possible that we could drop towards the 1.14 level, an area that previously had been resistance. On the other hand, if we were to turn around and rally a bit, it could send the market looking towards the 1.19 level. That is an area that was significant resistance. At this point, the market is likely to see this area as a major inflection point, as it will determine the next several hundred pips.
The question now is whether or not we break down, or if we turn around to show signs of consolidation yet again. This is all going to be about the interest rate differential and perhaps even the strength of the European Union. After all, the European Union is facing major supply shortages, which opens up the possibility of a weakening economy. At this point, I think that the next week or two will be crucial as to where we go for the next 200 pips.
All things been equal, this is a market that is likely to see choppy behavior more than anything else, but we do have a couple of weeks ahead of us that will determine the longer-term outlook. This is a market that I think probably favors consolidation, but if we do get some type of major “risk off” situation, then it is very likely that the US dollar will continue to see a bit of strength come into the picture. That being said, I think we are hanging on the edge right now and I would anticipate more confusion than anything else. Underneath the 1.16 level, then we have a clear sell signal, but above 1.1750 level it is possible we reenter the action that we have seen for several months. Keep your position size reasonable no matter what you do.