The Euro has rallied a bit heading into the weekend, which is a bullish sign. The 1.12 level has offered support again, so I think the original concept of the Euro trading in a range holds. Yes, the Thursday candlestick saw a massive selloff to crash towards the 1.11 handle. That being the case, the market looks as if it is trying to hang on to the idea of the same range that we had been in, with the 1.12 level offering support while the 1.15 level above is a significant barrier.
Keep in mind that the 50 day EMA is starting to tilt lower, we have just made a “lower low.” This suggests to me that although we may get a bit of sideways trading overall, you are probably better off shorting this market after rallies that show signs of exhaustion. The market is likely to continue to see a lot of noisy behavior, and of course will be held hostage by what goes on in Ukraine. If there is any hint whatsoever of this situation escalating, it is likely that the Euro will get punished as a result.
The interest rate differential still continues to favor the US dollar as well, as the Federal Reserve looks very likely to raise rates at least six times based upon market pricing. The US dollar is also a major safety currency, so with that being the case, the market is likely to continue to see any fear out there sending the market lower. All things being equal, this is a market that I think will continue to be very noisy and if you are range bound trader, you will probably find this to be the market conditions that work best for you.
As a general rule, when I find myself in an area that tends to be very sideways and well defined, I like the idea of buying dips with roughly half of the position size that I do to the downside, simply because it goes with the longer-term trend. That being said, if we were to break above the 1.15 handle, the Euro would almost certainly go much higher as it would be such a significant break out. The market is going to continue to be very choppy in general, but that is nothing new for the Euro.
