The euro initially rallied during the trading session on Thursday, but we have seen a lot of resistance above the crucial 1.18 level.
The 1.18 level of course is a large round psychologically significant figure and an area that has been resistance previously.
All things being equal, it does make a certain amount of sense that we would pull back from here because we have the interest rates in America rallying a little bit so that makes the US dollar a little bit more attractive. But when you look at this chart you can see that we are a little overextended.
Market Memory and Risk Appetite
I think a pullback from this area probably sends the euro down to the 1.17 level possibly even the 50 day EMA. If we turn around and break above the 1.1850 level, then you could see the market go looking to the 1.1950 level. This is a situation where the market I think has to find some type of reversion to the mean that might be closer to the 1.17 level and of course, we have to ask a lot of questions as to where risk appetite is going.
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The risk appetite of course will favor the euro if we do in fact see more peace in the Middle East. We'll just have to wait and see how that plays out. But when you look at the longer-term chart, we're basically at the top of the range where we had been in through basically the last 6 months of 2025.
So, there is a certain amount of market memory here in the EUR/USD pair, it wouldn't surprise me to see a little bit of a drop. If we break out to the upside the 1.20 level is the most obvious psychological target, but we'll just have to wait and see. Watch the 10 year yield in America if it starts to break above 4.3% decisively, that could send this thing tumbling.
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