The euro rallied significantly on Monday, breaking back above the 1.16 level. That is a very bullish sign, but you also need to keep in the back of your mind that the Friday candlestick was horrific. We pulled back from the 50-day EMA on Friday, breaking back towards the lows yet again. The lows continue to offer support near the 1.1550 level, and that is exactly what we have seen during the day. If we were to break down below that level, then the 1.15 level underneath could offer massive support as well. If we were to break down below there, then the euro crashes much lower.
At this point in time, I think we are trading in a range between the 1.1550 level underneath and the 1.17 level above. That is probably the range that we are dealing with for a while, as this pair does tend to be very choppy in general. Looking at this chart, I think that we are going to have a much easier time shorting this market than buying it, but one thing that you can use this chart for is to figure out whether the US dollar has relative strength or weakness, and as a result you can use it as a secondary or even tertiary indicator with some of your other dollar-denominated pairs.
If we break above the 1.17 level, then it is likely that we will go looking towards the 1.18 level after that. The 200-day EMA sits just above there, and it is likely that we would see sellers coming back into that picture. The 200-day EMA obviously is a major technical indicator, but beyond that we also have an area where we have seen a lot of structural selling. We are in a downtrend, and that is something that we need to pay close attention to, but at this point in time you need to be cautious about jumping into this market with both feet. Expect choppy and noisy trading, but that is typical for the euro in general. With that being said, keep in mind that this is a market that continues to see a lot of chop and headline issues, and as a result you cannot get too big into your position anytime soon.
