The euro tried to rally on Monday, but much like many of the other currencies against the greenback, we saw a bit of a pullback. The 1.16 level above continues to offer resistance, as we have been grinding lower. The question now is whether or not we are trying to form some type of “falling wedge”, because that could be a sign that we are ready to attempt a bit of a recovery. That being said, it would take quite a bit of effort to make this market truly break out to the upside. In other words, I am not necessarily looking to get long anytime soon.
In fact, it is not until we break above the 1.1650 level that there is any real possibility of going long, and even then, I think you are more or less living on borrowed time. I believe that the 50-day EMA is going to continue to offer significant resistance, currently sitting at a cluster of noise near the 1.1750 region. We have been in a downtrend for quite some time, so any rally at this juncture should be a significant opportunity to get short based upon “cheap US dollars.”
To the downside, if we can break down below the lows of last week, that opens up a flush lower towards the 1.15 handle where I would anticipate a bit of psychological support. Underneath there, the market is likely to go much lower, perhaps reaching down towards the 1.1250 level. The market is certainly going to be influenced by a lot of external factors, not the least of which will be the fact that COVID cases in the European Union are picking up and accelerating, while the United States is starting to see a drop in those numbers. Nonetheless, we are in a downtrend and that reality is the only thing that truly matters at the moment.
If we do somehow break above the 1.1750 level on a daily close, then it is possible that we could go looking towards the 200-day EMA, but we are a long way removed from that possibility, so I think we will eventually see any rally sold into at the very first signs of exhaustion. That is my plan going forward, but I also recognize that things could be very choppy.
