The euro went back and forth during the course of the trading session on Wednesday, as we have struggled with a 1.10 level above. The 1.10 level of course is a large, round, psychologically significant figure, and an area that would cause some issues of its own. If we can break down below the bottom of the candlestick on Tuesday, then we may see a bit more of a correction. We are hanging around the 61.8% Fibonacci level, so that has its own influence as well.
All things being equal, we need to pay attention to the fact that the market is overbought, but I don’t necessarily think this is the beginning of some type of collapse. The Federal Reserve will keep its monetary policy somewhat tight, and of course rates will be higher for longer than people anticipated, but recently we have seen the market try to price in the idea of the Federal Reserve stepping away from its tightening policy overall. All things being equal, this is a market that I think got a little overdone, and therefore we will see a bit of a correction.
On the other hand, if we can turn around and take out the top of the candlestick for the session on Wednesday, that would be very bullish. At that point, could open up the euro going all the way to the 1.1250 level. That being said, the market has been overstretched for some time, and the idea of gravity is starting to reenter the psyche of the market. Underneath, the 1.0850 level could be an area that would be support, as it has proven itself to be in the past.
All things being equal, this is a market that has to work off some of the excess froth, and while I do think that the euro drops from here, I don’t necessarily think that we are going to see a major turnaround quite yet. We would need some type of fundamental reason for the market to pay attention to in order to change the overall attitude for a longer move.
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.