The euro got absolutely clobbered on Tuesday, as we have broken through the 1.04 level quite handily. Furthermore, the market looks as if it has further to go, looking at the 1.02 level as the next target. When the market is more likely than not going to continue to see plenty of selling pressure, I do not like chasing the trade all the way down here. Instead, it becomes more of a “fade the rally” type of market, like anything else that has itself quoted in US dollars.
The 1.04 level above is a large figure that a lot of people would pay close attention to, especially as it had offered support a couple of times in the past. “Market memory” comes into the picture at that level, and I think there will be plenty of sellers. If we were to break above the 1.04 level, then it’s possible that we could go to the 1.06 level, where we would meet the 50-day EMA. The 50 Day EMA has broken lower for some time; therefore, I think it creates a significant amount of dynamic resistance.
Alternatively, we could just turn around and break below the 1.02 level. If we do, then the euro could drop down to the parity level, which is what my target is for the end of the summer. We are getting there much more quickly, so I think that we could even be talking about this by the end of the week. At this point, the euro is in freefall as we are seeing so much in the way of negativity globally, and when you have problems with energy, that’s not a good look for the continent.
It is not until we break above the 1.06 level that I would consider it a rally worth looking at. Even then, I would not be convinced that the market turned around until we broke above the 1.08 level. That would take a Herculean effort, so I would not hold my breath for that to happen anytime soon, so rallies are more likely than not going to offer nice selling opportunities to pick up “cheap US dollars.” The downtrend is fully ensconced, and quite frankly does not look like it’s changing anytime soon.
