The euro bounced around during the trading session on Monday, as we continue to test the crucial 200-Day EMA. Ultimately, this is a market that I think continues to see a lot of volatility, but I think what we have to pay the most attention to is the fact that there are multiple central banks out there with interest rate decisions this week, including both the Federal Reserve and the European Central Bank.
Looking at this chart, it’s obvious to me that we are in an area that previously had been important, with the 1.0750 level being an area that continues to be such a massive influence. If we were to break down below the bottom of the candlestick from the Friday session, that could open up a move down to the 1.0650 level, but of course if we can break above the 1.08 level, that could open up quite a bit of buying pressure. All things being equal, this is a market that I think continues to see a lot of choppiness, as we will have to sort out whether or not the Federal Reserve is actually going to tighten, or if the ECB is going to be able to keep interest rates higher. After all, the European Union is likely to head into a recession, assuming that it’s not already in one.
In general, this is a situation where you need to be cautious with your position sizing, as the market will not only be volatile due to the central banks this week, it will also see a potential volatile couple of weeks due to the fact that we are heading into the holiday season, and more likely than not will see volume dry up rather drastically. The next week could be noisy, but once we get beyond New Year’s Day, then the market could go back to some sort of normalcy. That being said, this is a market that needs to be approached carefully and recognize that you need to be cautious more than anything else. In general, this is a market that is at a major inflection point, and therefore a big move could be coming somewhat soon.
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.