The euro rallied a bit against the US dollar on Monday but gave back some of the most extreme gains as the 1.16 level continues to act as a magnet for the market. At this point, we have seen a lot of negative downward pressure, and as a result I did not get involved in buying this market on a break to the upside. I would expect more of a “sell the rallies” type of situation going forward, at least on signs of exhaustion.
Beyond that, I think there is a significant amount of resistance possible between here and the 1.1750 level, so if we get any candlestick with the long wick to the upside, I am willing to start shorting simply because it falls right in line with the overall downward pressure. I do believe that the market will revisit the 1.16 level underneath, which is where the market had seen a significant amount of support. If we break down below the lows of last week, it is likely that we could go looking towards 1.15 level, which obviously has a lot of psychology buried into it.
To the upside, if we were to break out above the 1.1750 level, then it is possible we could go looking towards the 1.18 level, and then possibly even the 20-day EMA after that. Nonetheless, it is not something that we are going to see in the next day or two, so I am simply waiting to see if we get an opportunity to short this market. Even if I do not trade anything in this market going forward, I can use it as an indicator as to whether or not there is US dollar strength or weakness from a fundamental standpoint and extrapolate that information into other currency pairs. If the US dollar is showing signs of strength, then I know that I will be looking to buy the greenback against other currencies as well. However, if the euro takes off to the upside, then it is very likely that the US dollar will fall against other markets. Expect choppy and noisy behavior, especially as we get later in the week with the jobs number on Friday.
