The euro was slightly negative during the early hours on Monday but continues to see quite a bit of support just below. Because of this, I don’t necessarily think there’s a lot to be read into the Monday candlestick, other than the fact that we continue to see a lot of noise. Ultimately, I think this is a market that will eventually have to sort itself out, but right now I don’t see a lot that would change the way the market behaves.
The 1.08 level is an area of significant support, perhaps stretching to the 1.0850 level. In other words, I think every time this market dips, there will be buyers underneath willing to get involved. As long as that is going to be the case, then a “buy on the dips” strategy probably works out, at least between now and the end of the year. Traders are now trying to price in the idea that the Federal Reserve is going to start cutting rates as soon as March, and that of course works against the value of the US dollar.
On the other hand, you also have to keep in mind that the European Union is not exactly in a great position either. The market breaking above the Friday candlestick that was a massive hammer would be a very bullish sign, and I think at that point we probably could look into the 1.10 level above. 1.10 level is an area that is a large, round, psychologically significant figure, and will attract a lot of attention. In fact, we have sold off rather significantly since then, but whether or not it would be as resilient the next time we try to break above that level remains to be seen.
If we break down below the 1.08 level, then things change quite drastically, and we could kick off another leg lower based upon the longer-term downtrend that we had been in until recently. This all probably comes down to interest rates in the United States, so pay close attention to the bond market and whether or not rates are rising or falling.
Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.