The euro has initially fallen during the trading session on Tuesday, only to turn around and show signs of strength again. By doing so, it looks as if the market is trying to continue forming the channel that we have been in.
The euro initially fell a bit during the trading session on Tuesday, but then turned around to show signs of life again. Now it looks like we can continue to bounce around in this channel, which of course could end up being a major part of a bearish flag. With this being the case, I think you’ve got a situation where we could bounce a little bit from here, only to see the market show a significant amount of resistance above. Ultimately, I do think that the euro has a lot to prove, due to the fact that we not only have US dollar strength in general, but we also have to worry about the European Union slipping into a recession.
The ECB is likely to start loosening its monetary policy much quicker than the Federal Reserve, and that is being shown on this chart. The 50-Day EMA is approaching the top of the flag part of the pattern, so that’ll be interesting to see if it comes into play. A rally from here could reach the 1.0650 level and not even change the overall attitude of the market. Alternatively, if the market were to break down below the 1.05 level, it would kick off a significant amount of momentum to the downside, which is a very real possibility as well.
In the meantime, I would anticipate that this market bounces around in a bit of a grind, as investors are starting to pay close attention to earnings calls on Wall Street, but also have an eye on the bond market as the yields in the United States continue to climb. The geopolitical situation going on in the Middle East of course has a lot to say as well, as the US dollar is considered to be a safety currency, which might come into vogue again, as there are so many things that concern yourself with. At this point, I still think this favors a “fade the rally” type of approach to the currency pair as we are still very much in the midst of a nasty downturn.
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Chris is a proprietary trader with more than 20 years of experience across various markets, including currencies, indices and commodities. As a senior analyst at FXEmpire since the website’s early days, he offers readers advanced market perspectives to navigate today’s financial landscape with confidence.