EUR/USD pair tried to rally during the course of the session on Friday, but as you can see gave back all of the gains to close just below the 1.12 handle. The resulting candle is a shooting star of sorts, and it looks like we are ready to continue going lower. With that, we are sellers on a break below the bottom of the candle, as we believe that the market will then target the 1.10 handle given enough time. If we get below there, this market could continue all the way down to the parity level. A break of the top of the shooting star suggests that we could get a little bit of a bounce, but we continue to sell resistive candles above.
With the increased liquidity out of the European Central Bank, it makes sense that the Euro continues to fall against the US dollar as the Federal Reserve at least is stepping away from the quantitative easing game, if not tightening rate sometime the next year or so. This is a market that should continue to favor the US dollar as it is one of the favored currencies around the world anyway, and of course there are far too many moving parts in the European Union for people to be comfortable owning the currency. We have problems in Greece, we have deflationary concerns around the continent, and then of course there’s also a lot of uncertainty in various bond markets.
Rallies will run into a significant barrier at the 1.15 level, as it is a large, round, psychologically significant number and the beginning of massive resistance all the way to the 1.1650 level. Even if we got there, the biggest problem is that the 1.18 level begins another 200 pips resistance barrier. In other words, it’s just not worth being bothered with trying to go long. This is a trend that’s not going to easily break, so at this point time we look at rallies as value in the US dollar and will continue to as the Euro simply is not trusted.
