Keep in mind that a lot of traders will be looking to put risk on heading into the first week or so into the year, so it is then when you start to see flows picked back up in the currency markets.
The euro has been a great way to watch money get spent sideways for a while, and I suspect that the very beginning of January will be more of the same. Unfortunately, far too many retail traders pay too much attention to the low spreads, and not enough to volatility. However, once we get the jobs number coming out for January, then we might be able to see a little bit of momentum built up in one direction or the other.
As things stand right now, the market simply has nowhere to go, with the 1.1375 level being massive resistance, and the 1.1225 level being massive support. I do not expect it to change anytime between now and the jobs report, so between now and then, this is a pair that really does not have any appeal to me whatsoever. However, once we get that crucial information, there is a chance we could make a bigger move.
We are still very much in a downtrend, and it is worth noting that the 50 day EMA is hanging about the 1.14 handle, making it even more difficult to break out. Unless that jobs number is horrible for the US dollar, I suspect that any move to the upside will probably be sold into. Keep in mind that the Federal Reserve begins tapering its bond purchases next month, and that is going to have an influence on the value of the US dollar itself. Short-term rallies that show signs of exhaustion are selling opportunities from what I can see. If we can break down below the 1.12 handle, then I think we could make a move down to the 1.10 level, and possibly much further than that.
On the other hand, if we clear the 1.14 level, then the next target would be the 1.15 level. Clearing that would be a major victory for the euro bulls, allowing them to recapture the momentum again. That is not my base case scenario, but it is something that I have to keep in the back my head. Keep in mind that a lot of traders will be looking to put risk on heading into the first week or so into the year, so it is then when you start to see flows picked back up in the currency markets.
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