The Euro rallied a bit during the trading session on Wednesday after the Federal Reserve meeting. The market still sees a lot of noise and its general vicinity, ostensibly the 1.02 level. Because of this, I think we got a scenario where we are probably setting up for a “fade the rally” type of deal, as the market had gotten far too overextended. All things being equal, we are in a tight range, and we are near the top of it.
If we break it down from here, the market is likely to go down to the parity level, which is a large, round, psychologically significant figure, and an area where we would expect a lot of interest based on that noise alone. The market breaking down through the parity level could be a very negative turn of events, opening up the possibility of a move down to the 0.98 level. Despite the fact that we rallied quite nicely during the session, this is exactly what I am expecting to see over the longer term.
In the meantime, we could break higher, and if we do, it’s likely that we will continue to see resistance at the 1.04 level as well. Not only is that an area where we have seen previous support, but we also have “market memory”, and the 50 Day EMA showing up in the picture as well. In other words, it’s a perfect place to start shorting, assuming that we can even get there. I don’t necessarily think that’s going to happen, but it’s always possible.
The interest rate differential between the two economies continues to widen, and that will be a major issue in general. In fact, it’s not until we break well above the 1.04 level that I would consider this a potential buying opportunity. The market breaking above there on a daily close does perhaps open up the possibility of follow-through, but that would take a major shift in the market. What I find interesting is that even though the stock market took off after the Fed meeting, the currency markets weren’t as sold on the idea. That might be something worth paying attention to, especially as we have GDP numbers coming out during the session on Thursday from the United States.
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