- The EUR/USD experienced some early losses during Tuesday's trading session but found sufficient support at the 1.06 level to reverse course and demonstrate some resilience.
- Overall market sentiment appeared to be cautiously optimistic, which could explain the Euro's efforts to regain momentum.
- However, it's worth noting that the 50-Day EMA is currently acting as a resistance level just below 1.0675.
Traders should also pay attention to the fact that the currency pair is currently wedged between the 50-Day EMA and the 200-Day EMA, which often attracts considerable attention. When a currency pair is situated between these two key indicators, traders on both sides are usually pushing hard. This means that explosive movements are likely to occur as one side eventually loses.
If the Euro manages to break above the 50-Day EMA, it's possible that it will target the 1.08 level. However, if it falls below the 200-Day EMA, it's very likely that a substantial drop in value will occur. In such a scenario, it's possible that the currency pair could fall as low as the 1.03 level before potentially hitting parity, a critical area of interest. If the market has parity, it will be a headline-making event, as it typically is in most markets, thereby increasing volatility and the likelihood of support in that region.
Focus on Position Sizing
Traders should also monitor the interest rate situation in the United States. Currently, the 2-year and 10-year yields have risen, which typically helps the US dollar. Nonetheless, the markets remain volatile, and noisy behavior is expected. The European Central Bank has reiterated its commitment to keeping inflation at 2%, while the Federal Reserve has indicated its preference for a tight monetary policy. These opposing factors create a significant degree of uncertainty and may lead to erratic behavior in the markets.
Given the likelihood of market volatility, it's essential to focus on position sizing. Traders should maintain a cautious approach and ensure that they do not take excessive risks. While the Euro appears to have some momentum, its future direction remains uncertain, and traders should approach it with caution. Position sizing will be the best thing you can pay attention to at the moment because quite frankly it’s going to take very little to shake people out of trains and what looks to be a major inflection point.
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