The Euro has fallen hard during the trading session on Thursday to threaten the 1.05 level. The 1.05 level of course is a large, round, psychologically significant figure, and an area that has been important multiple times. Because of this, it is not overly surprising that we stall in this area. If we rally from here, it is likely that we will continue to see plenty of pressure. The 1.08 level above is a significant barrier, and the 50 Day EMA seems to be racing towards it, which is yet another reason to think that the market will find plenty of sellers.
On a breakdown below the 1.05 level, then we are more likely than not will try to get down to the 1.04 level. The 1.03 level underneath is the bottom of the overall consolidation that we had seen previously, and therefore it is likely that we continue to be influenced by the previous action. Ultimately, I do think that we can get down to the 1.03 level, but it is going to be very choppy, and not very easy.
As far as buying the Euro is concerned, we would need to see a massive shift in attitude, and perhaps a break above the 50 Day EMA. Furthermore, the 1.0933 level is an area where we have seen a lot of selling pressure as well. If we can clear all of that, the market is likely to turn around and go much higher. That would obviously take a major shift in attitude from the Federal Reserve and of course the European Central Bank as well.
The market will continue to see a lot of volatility, and quite frankly I think that is going to be the norm in almost all currency pairs. The interest rate differential between the United States and Germany still dictates that we need to go lower, and of course rallies at this point should be thought of as value for the US dollar. Getting a little bit of a bounce should be thought of as a nice opportunity, but you should also keep in mind that the pair very rarely moves in one direction for very long, so it is going to be difficult to trade this directly off of the daily chart. However, I will not hesitate to use the one hour chart.
