The euro had a slightly bullish month for May but has struggled to continue going higher. Because of this, I think the market looks likely to get a little bit of a short-term pullback, but when you look at the last couple of candlesticks, it does suggest that we have support underneath above the 1.2050 handle, as we ended up forming a bit of a hammer. Beyond that, we have formed a couple of shooting stars that have struggled to break out above the 1.2250 handle, so when you see that it is quite common to simply go back and forth.
Looking at this chart, I suspect that we are going to bounce around back and forth during the course of the month, searching for some type of support underneath. Ultimately, I think what we will have is a challenge of the 1.20 region, offering quite a bit of support. As long as we can stay above there, I still think of this as a “buy on the dips” type of market. This is especially true considering that the US dollar is on its back foot as the Biden administration is hell-bent on spending trillions of dollars this year in forms of stimulus. Furthermore, we also have the European Union opening up and showing signs of recovering, so that is a good sign for the euro; but at the end of the day, this is a market that looks tired in the short term, so I would not be a buyer here.
That being said, if we can break above the 1.23 handle then the market would continue to go much higher, perhaps reaching towards the 1.25 handle, which is a large, round, psychologically significant figure and an area that has been important more than once over the last several. Ultimately, I think this is a market that could continue to be very choppy, but at the end of the day it is likely that we will see more of a “buy on the dips” type of scenario going forward. This will be especially true as long as we do not have some type of “risk off” type of event that has the US dollar suddenly looking very desirable. I believe that this market will start out somewhat soft for the month of June, only to turn around and rally.
