EUR/USD Forecast: Euro Breaks Out to Kick Off Week

The euro rallied quite a bit on Monday, breaking above the 1.06 level. Ultimately, the market has seen a lot of upward momentum during the trading session on Monday, but it is a countertrend rally to say the least. After all, the euro is going to continue to struggle against the greenback based on the fundamentals and momentum more than anything else. Ultimately, this market will continue to be noisy, but it is coming from a major oversold level, so a bounce like this does make a certain amount of sense.

That being said, the 50-day EMA sits just above and is causing quite a bit of potential resistance. The market has been very violent to the upside during the trading session, based upon comments coming from Christine Lagarde suggesting that the ECB could raise interest rates by 25 basis points. That being said, there is still a huge difference between the two central banks, and this short-term rally could be an opportunity to start selling again as the US dollar should be stronger than the euro.

Even if we were to continue rallying from here, the 1.08 level should be significant resistance, as it had been significant support previously. “Market memory” should come into the picture and I think a lot of traders will be looking to get involved in that area, assuming that we can even get that aggressive to the upside.

On the downside, if we were to break down below the 1.05 level, it is likely that we would see the euro continue to meltdown. After all, even though we have seen such a significant move over the last 24 hours, it is still a market that has been extraordinarily negative for quite a while, and these things do not change overnight. If the Federal Reserve was to change its tune, that would obviously change a lot of things here, but at this point, the US dollar is still the favored currency, despite the fact that we may get the occasional rip to the upside as we have. The fact that we are closing towards the top of the range for the day does suggest that perhaps we have a little further to go before the weight of the overall trend exerts itself yet again.