The euro initially tried to rally on Tuesday but gave back the gains as we approached the 1.06 level. This is an area that has been a bit difficult to overcome as of late, so is not a huge surprise to see that the market wilted as we approached it. That being said, most of what the market is paying attention to will be the CPI numbers over the next 24 hours, as the Consumer Price Index is a good read on inflationary pressures. The CPI number coming out hotter than anticipated would be a potential reason for this market to break down below the 1.05 level, just as a CPI reading that was much lower than anticipated could have the market rallying.
Looking at this chart, you can see that it has been rather tight for the last two weeks, which is typical of a market that is trying to build up the necessary momentum to get moving for a bigger high or low. The market will react accordingly, but at this point, you should keep in mind that the market is most certainly bearish, so it is difficult to imagine a scenario where we suddenly change everything.
If we do get a rally at this point, the 1.08 level above will be a barrier that is going to be difficult to overcome. The 50-day EMA sits there, as well as the “market memory” of the pair initially having support there. That should translate into resistance now, and as a result, on any type of rally I will be looking for signs of exhaustion in that area that I can jump all over to get “cheap US dollars.”
As far as buying this pair is concerned, I would not be interested until we can break above the little “ledge” that sits at the 1.0933 level, which had been so resistive just a couple of weeks ago. If we can break above there, then I would be convinced that we have something going. We would have to have a reversal of almost everything in the world to make that a reality, so I just do not see that happening. I would love to see this pair bounce a bit so that I can sell it heading closer to the weekend. However, I will also be a seller if we break down below the recent lows.
