The euro rallied a bit on Wednesday to reach the top of the overall consolidation area that I have marked on the chart. At this point in time, I do not really see much to do other than look for signs of exhaustion that we can start shorting. The 1.1375 level is a significant area to cause selling pressure, but the downside is somewhat limited.
Keep in mind that the 1.1225 level is significant support underneath, so that is probably as low as we can go. The size of the candle is somewhat impressive, but we are already starting to pull back from the same area we have seen trouble at more than once. The market will respect that resistance barrier as long as we do not break above the 1.14 handle. If we were to break above the 1.14 handle, then the market is likely to continue going higher, perhaps reaching towards the 1.15 level.
To the downside, if the market were to break down below the 1.1225 level, then we will probably go looking towards the 1.12 handle. After that, the next significant target is the 1.10 level. Quite frankly, with all of the problems we have in the European Union at the moment, it is really difficult to imagine that the euro is going to rally for any real significant amount of time, so part of what you are seeing here is the “end of the year doldrums” being played out on the chart. The markets will get more and more thin over the next couple of days, so you need to be cautious about your position size due to the fact that a sudden headline could cause a massive spike in one direction or the other. While unlikely, it can cause major damage to your trading account. It is because of this that I tend to trade smaller positions at this time a year, because the last thing you need to do is take a massive loss heading into the new year. The market is going to put everyone to sleep would be my suspicion, but that is not really that far from the realm of normalcy when it comes to this pair. Using a stochastic oscillator on a short-term chart might be the best way to go going forward.
