The Euro tried to rally at the open on Monday, as we have seen a bit of “value hunting” out there. With this, we then turned around to fall apart again.
EUR/USD
The Euro initially did try to rally a bit during the trading session on Monday after gapping lower, but then fell apart. All things being equal, it's more a situation of interest rates rising, putting downward pressure on the Euro as the US dollar strengthens.
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Ultimately, I believe this is a situation where traders are looking at this through the prism of a market that will eventually try to determine whether or not the 1.14 level underneath will continue to offer support. I don't know, but at this juncture it certainly looks like it will. We had bounced pretty significantly on Friday and Monday. Although we are drifting towards that area, it doesn't look like we're going to break through it.
Key Support and Resistance Targets
So, with all of that being said, I think you need to look at this through the prism of a market that I think continues to be a situation where the EUR/USD market is going to be watching this very closely and if we were to break down through the 1.14 level, it almost certainly could open up a massive selling pressure just waiting to come into the market and send the Euro down to the 1.12 level.
If we rally from here, the 1.16 level could be a bit of a target, but I don't know that it ends up being a massive, easy move to the upside. I think you have to believe that traders will probably see more of a grind.
You'll have to watch the 10-year yield in the United States and, of course, the 10-year yield in Germany to get a good idea as to what currency would be wanted. I suspect we get a nice pop from here eventually, and we did start to see that on Friday, but we need more risk appetite out there. Again, if we break down below the 1.14 level, then I think the 1.12 level would be the next target.
The next day or two should give us a heads-up as to how we are going to trade for the next several sessions after that. We're at a major point of inflection; this is worth watching.
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