EUR/USD Forecast: Euro Hangs On to the 1.16 Handle

I am looking for an opportunity to short this market on signs of exhaustion if I do get that bounce. Nonetheless, I am not afraid to short a fresh low either.

The euro fell a bit on Tuesday to break down below the 1.16 level underneath. The market then turned around to break above the 1.16 level and build a bit of a hammer. At this point, the market looks as if it is going to try to recover, but even if it does, I think that there is plenty of resistance that can be found at the 1.17 level above, which is an area that had seen a lot of selling pressure.

A lot of this is going to come down to the US dollar itself, and probably have very little to do with the euro in general. The 10-year yield continues to be a major driver of where the US dollar goes, with higher rates offering a bit more attractive qualities to the greenback. At this point, we may be a little bit overdone to the downside, but I think rallies will continue to be sold into unless something fundamentally changes. The European Union also has a lot of concern around it due to the fact that it cannot even power itself right now, so that is not necessarily somewhere a lot of money will be looking to invest in.

If we break down below the bottom of the recent pullback, then it is likely that euro will go looking towards the 1.15 level, an area that attracts a lot of psychological attention. At that point, I would anticipate a certain amount of buying pressure to reappear, mainly due to the fact that a lot of traders pay close attention to these big figures. Anything below the 1.15 level would probably send this market much lower. To the upside, if we were to manage a break above the 1.17 level, then it is possible that we could go looking towards the 1.18 level above, which would be significant psychological resistance and an area where we have seen a lot of selling pressure. Between here and there, we have the 50-day EMA, which should be paid attention to as well. Ultimately, I am looking for an opportunity to short this market on signs of exhaustion if I do get that bounce. Nonetheless, I am not afraid to short a fresh low either.

 

Christopher Lewis

Christopher Lewis has been trading Forex for several years. He writes about Forex for many online publications, including his own site, aptly named The Trader Guy.