- The EUR/USD rallied a bit during the trading session on Wednesday, testing the 200-Day EMA.
- The 200-Day EMA is an indicator that a lot of people pay close attention to, so it’s not a huge surprise that we are struggling in this area.
- Furthermore, the 1.04 level is an area that has previously been massive support, so therefore it’s likely that something is going to continue to threaten the market, and I do think that we are more likely than not going to see a bit of a drop.
- However, the Euro continues to whistle past the graveyard, so with that being the case you always have to be cautious.
If we break down below the bottom of the candlestick for the trading session on Tuesday, that point I am more than willing to start shorting, perhaps dropping this market down to the parity level would be the target. 50-Day EMA sits right there and is curling higher, so that does make a nice little target. Obviously, parity is a level that a lot of people will pay close attention to, so it is worth noting how things have play out in that area if we get there. It will break down below there, it would obviously be a very negative turn of events.
Volatility Ahead
Keep in mind that we have seen a couple of vicious “risk on rallies” over the last year or so, and they have been sold into quite rapidly. Because of this, we could see a bit of a meltdown, but we would need something to kick off the risk off type of attitude. On the other hand, we do break to the upside, it’s difficult to argue with the market, and quite frankly it’s a great way to lose money.
I would anticipate a lot of volatility in this market, and pretty much everything else as well. With that being the case, you need to keep your position size reasonable, and if we did suddenly find ourselves in an uptrend for a bigger move, Forex markets tend to have 3-year cycles or more, so you have plenty of time to jump on that bandwagon. Trend changes tend to be very noisy events, but quite frankly the fundamentals just don’t line up as the 2-year yield in America has yet to move, while the 10 year yield continues to fall. In other words, Federal Reserve policy hasn’t botched.
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