EUR/USD Forecast: Bounces to Test Parity Yet Again

• The EUR/USD rallied rather significantly during the trading session on Wednesday to test the parity level.
• The parity level of course attracts a lot of attention, therefore it’s likely that we will continue to see a lot of volatility.
• At the 1.01 level above there is also a significant amount of resistance as well. Furthermore, we also have the 50-Day EMA that has broken down below the 1.02 level, and it is likely that we are going to see the market continue to offer plenty of dynamic resistance there, as we have seen for a while.

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The size of the candlestick is somewhat impressive, but at the end of the day we are still very much in a very negative trend, and I have no interest in trying to get too cute with this. I like the idea of fading short-term rallies to show signs of exhaustion, as the Euro has no business rallying against the US dollar for the longer term. Yes, the European Central Bank is likely to raise interest rates this week, but it’s likely that we will see traders pay close attention to the statement afterward, as Christine Lagarde will have to walk a fine line. After all, the market is more likely than not going to be disappointed by the outlook for the European Union.

Market Concerned About EU’s Energy Squeeze

We have a lot of concerns when it comes to the future of the EU, as the Europeans will be dealing with a lack of energy and of course quite a bit of divergence when it comes to the various countries around the continent. The market is likely to see a lot of volatility going forward, therefore think what we’ve got is a situation where you continue to see opportunities to fade rallies, so if you are cautious enough, it’s likely that we will see an opportunity to pick up cheap US dollars, as the ECB will be somewhat limited in what it can do. Furthermore, the market is likely to see a lot of choppy behavior, but that’s nothing new for the Euro. It is not until we break above the 1.04 level that I would consider going long, and that would only be if the ECB sounds surprisingly hawkish. Expect a lot of noise in the next couple of days, but ultimately, I still look to sell.

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