The euro went back and forth on Tuesday, to test the 1.16 level yet again. This is an area that has been important multiple times, and if we can break above the 1.1625 handle, I think that could kick off a major turnaround in this market. You can see that we are at least trying to do that, but at this point it looks as if we do not have the momentum. It will be interesting to see how this plays out, because the euro has, at least in the short term, formed a little bit of a “double bottom.” It is also worth noting that the “double bottom” is sitting just above the 1.15 handle, an area that would attract a lot of attention from a longer-term standpoint.
If we were to break down below the 1.15 handle, that would obviously be a very negative turn of events, sending the euro much lower as the market would see fresh money coming into this market. At this point, I tend to look at this market as more or less an indicator of US dollar strength or weakness, so I am not necessarily worried about trading in it, but I do recognize that there are major ramifications for the value of the greenback if we see a big move in this market.
This is a market that I think will continue to be very noisy, which is typical for this pair. The market breaking higher to the upside could keep the momentum going, because it will more than likely catch a lot of traders on the wrong side of the market. At that point, we could have a pretty big move towards 1.17 handle, and then eventually the 1.18 level. If that does happen, I anticipate that other currencies such as the Australian dollar, Canadian dollar, and New Zealand dollar all have big moves against the greenback, because they generate quite a bit more alpha under normal circumstances anyway. With that being the case, I think what we have is a harbinger of where we will go next over the next couple of days. Keep in mind that the European numbers have gotten a little bit better, so that does help the idea of this market rallying as well.
