Pay attention to the differential between the 10 year German Bund and the US 10 year note. This is the key to what is going to happen next.
The Euro has rallied a bit during the course of the trading session on Tuesday as Jerome Powell spoke in front of the United States Senate. That being said, we are still in the same consolidation area that we have been and for what seems like a lifetime now, but we are threatening the 50 day EMA which of course is an indicator that a lot of people will pay close attention to.
Sometimes a market screams, sometimes it whispers. At this point, it is worth noting that the lows continue to grind just a little bit higher, although we are not necessarily forming an ascending triangle at this point. Perhaps the market is trying to whisper that the Euro is eventually going to break out, and I think that clearing the 50 day EMA at the very least is probably what you need to see in order to get bullish. To be honest, I would be much more comfortable buying the Euro if we can break above the 1.14 level on a daily close. If that were to happen, then I would anticipate a run towards the 1.16 level where we had sold off from previously. Obviously, this takes a lot of momentum and effort, and I do not necessarily want to be the first one in the market to make this happen.
To the downside, the area right around 1.1275 has offered support recently, so a break down below that level opens up the possibility of a move down to the 1.1225 level which was support previously, and then at this point it is likely that the market would break down significantly, perhaps sending the Euro down to the 1.10 level underneath. That is an area that obviously has a lot of psychology attached to it, and of course an area that looking back several years had been very important.
It will be worth noting whether or not the interest rate differential continues to be an issue, but it should be noted that the US 10 year yields did drop a bit during the session after initially trying to strengthen, and as a result we have seen a short-term turnaround in the Euro. Pay attention to the differential between the 10 year German Bund and the US 10 year note. This is the key to what is going to happen next.