The euro started out the session on Friday at the 50-day EMA, but then turned around to break down rather significantly and slice through the 1.16 level. By doing so, the market looks as if it is trying to break down below the most recent lows and reach towards the 1.15 handle. The 1.15 handle is a large, round, psychologically significant figure that will attract a certain amount of attention. If we were to break down below there, look out below.
Looking at this chart, it is worth noting that we had formed a perfect barrier at the 50-day EMA, an indicator that a lot of people pay close attention to. The euro itself is in a bit of trouble, as it has been the major underperformer in relation to the US dollar as of late. Whether or not that continues is a completely different question, but at this point in time it looks like we are going to have to steer clear of buying this pair. If the market does start to rally, then it is probably more likely that I will be a buyer of other currencies against the US dollar, due to the fact that the euro simply cannot seem to get out of its own way.
I use this pair as more or less an indicator of US dollar strength or weakness, but if we were to break down below the 1.15 handle, I would probably get aggressively short of this pair. I would not be surprised at all to see this market turn around rally at this point, but again, I would not be a buyer of this pair. I would be likely to buy something like the Australian dollar against the greenback. On the other hand, if we do break down here, I would be aggressively short of this pair, and then would start to short other pairs against the greenback if we see a bit of follow-through in those charts. The euro continues to underperform against most currencies, not just the greenback, so it makes sense that we continue to slump. This candlestick is very ugly looking, but not necessarily a harbinger of what we have seen in other markets over the last 24 hours or so.
