It is likely that the downtrend will continue and that is how I will trade this market.
The euro fell a bit on Monday to show signs of weakness right away. Because of this, the market is likely going to continue to see downward pressure, as we have seen a significant amount of resistance above which should continue to keep this market down. The 1.11 level above is a significant resistance barrier that extends all the way to the 1.12 handle. Furthermore, the 50-day EMA sits just below the 1.12 level and is dropping lower.
Looking at this chart, I think it is only a matter of time before we see a certain amount of exhaustion that we can start selling on short-term rallies. However, if we break down below the 1.10 level, then it is likely that the euro will drop towards the 1.09 level, possibly even the 1.0850 level in the short term. Longer term, this is a market that has been in a downtrend, and it is likely that it will continue to see sellers come back into this market as the euro has a whole host of problems behind it.
The bond yield differential between Germany and the United States continues to be a big deal, so it should continue to favor the greenback overall. Ultimately, I think this is a market that continues to be a “fade the rallies” type of situation because I just do not see a reason why the euro should continue to strengthen for any significant amount of time.
That being said, price is the only thing that truly matters so if we can get above the 1.12 level, then I would have to listen to the possibility of the euro going higher. This would be on a daily close at the very least, and therefore you would probably take some type of major situation where the complete outlook for global risk and perhaps economics would change. I just do not think that would happen though, so having said that it is likely that the downtrend will continue and that is how I will trade this market. Ultimately, I believe that the US dollar has much further to go against quite a few currencies, including this one. Granted, there will be the occasional bounce in this pair, but it still looks like we have plenty of reasons to be bearish.
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