Expect choppiness, but I still like the idea of shorting rallies that show signs of exhaustion.
The euro initially shot higher on Tuesday but struggles in the same general vicinity that it has over the last week or so. With the two rate hikes being priced out of the market that traders had anticipated from the ECB, it does make sense that the euro continues to lose ground against the greenback as the Federal Reserve is certainly going to be raising interest rates rather quickly. Because of this, I think the downward trend will continue.
That being said, it will not necessarily be a move straight down, although we are forming what is known as an “H pattern”, something that is relatively bearish in and of itself. When you look at the chart, you can see clearly that the 1.1285 level has offered short-term support, and now if we can break down below there, I think that we will continue to go much lower, perhaps reaching towards the 1.12 level. On the other hand, if we can break above the 1.14 handle, we could make an argument towards 1.15 level, where we have formed a bit of a “double top.”
You can also take a look at this chart and realize that the 50 day EMA is slicing through the recent price action, so I do think it makes a certain amount of sense that we continue to see a lot of noise in general. As long as we continue to see a lot of questions about the overall attitude of risk appetite, we will continue to see this market jump back and forth as well. Further adding to concerns is the fact that the tensions in the Ukraine are on the doorstep of Europe, and that does very little to help the confidence in the economy and/or the currency.
If we were to somehow turn around and break above the 1.15 handle, then it would obviously be a very bullish sign, but I just do not see that happening very easily. This is especially true considering that we could not hang on to the gains of the session, and could not even make an attempt to look like that was going to be the way. Expect choppiness, but I still like the idea of shorting rallies that show signs of exhaustion.
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