The euro initially tried to rally on Tuesday, but above the 1.14 level we have seen a lot of selling pressure, and then turned around quite drastically. At this point, it looks as if the market has changed its attention yet again as we are now focusing on here. The US dollar was being used as a safety mechanism during the trading session, and we have smashed through what had been previous resistance, so the retest theory has already been negated. Whether or not we find buyers between here and the 1.13 level remains to be seen, but at this point it is a matter of waiting around to see what the market wants to do.
While it has been extraordinarily negative during the trading session, the reality is that we still continue to see a lot of fear and confusion in the markets, so I would not necessarily anticipate a major selloff. This is a market that I believe will continue to be very noisy and you cannot get aggressive by jumping in with your entire position size, nor can you anticipate what is going to happen next. I would wait for some type of confirmation, but it is obvious that the Tuesday candlestick does suggest we could go lower. There was a lot of noise underneath that could come into the picture and offer the possibility of a support region, but obviously you would need to see some type of supportive daily candlestick in order to get involved. The 1.1225 level underneath was the bottom of the range, so the question is was this simply a “false breakout” at this point, or are we continuing to find buyers jumping in in order to sell off the US dollar due to the Federal Reserve likely making some type of mistake? I think at this point it is a bit of an open question and we will continue to see a lot of nonsense out of the market. With this being the case, make sure your position size is relatively small and only add when it works out in your favor. If we break back above the 1.14 handle, that would be a very bullish sign, perhaps opening up some type of recovery towards the 1.16 level.
