The euro rallied significantly on Friday as the jobs number came out much weaker than anticipated. In fact, the euro broke above the 200-day EMA and even pierced the 1.19 level. That being said, the market is most certainly overbought at this point, so I think that a pullback makes sense. The shape of the candlestick is a shooting star, and that does suggest that perhaps we could get a pullback. That being said, we had seen a shooting star during the day on Tuesday as well and then simply sliced through it.
If we were to break above the highs of the day on Friday, then I think that the euro will probably go looking towards the 1.20 handle. If we were to break down below the bottom of the candlestick for the trading session, then it is likely that the market will pull back towards the 50-day EMA. I think at this point we will start to pay close attention to risk appetite, because although we have obviously seen a lot of weakness from the US central bank and a lack of enthusiasm in the job market, if money starts to flow into the bond markets it is very likely that we will see the US dollar pick up a little bit of a surprise bid.
If we break down below the 50-day EMA, that would be a sign that traders are starting to run for safety, and I think at that point we would be looking at a move towards the 1.17 level. While that is not my best case scenario, we have clearly gotten way ahead of ourselves at this point, and I think that is part of what you are seeing here. Ultimately, this is a market that I think continues to be very volatile, and with Labor Day on Monday, I would not read too much into the Monday candlestick itself. By the time we get back to work on Tuesday, we should have quite a bit more in the way of clarity when it comes to this pair. It should be stated that the daily candlestick does not offer a lot of confidence.
