The EUR/USD pair continued the bearish pressure during the day on Thursday, as the reaction to the dovish statement by Mario Draghi continues. In fact, we are below the 1.16 level as I record this, and this has triggered a head and shoulders pattern which of course is very bearish. If that’s the case, I think that any rally’s that we see are going to be treated with suspicion, and the measure of the head and shoulders pattern sends this market looking to the 1.13 level underneath, which consequently is also the 50% Fibonacci retracement of the massive move higher that we have seen. Overall, this pair probably continues higher over the longer term, but we are clearly overbought on the longer-term charts, so this pullback is not only necessary, but quite frankly welcome. I think that short-term traders can be able to sell this market, while longer-term traders are going to be able to pick up value at lower levels.
I think that a move above the 1.18 level would negate everything, but I just don’t see how that happens. I love rallies for selling opportunities on signs of exhaustion, and quite frankly patience will be needed in this market to take advantage of the recent bearishness. If we did break above the 1.18 level, that would be an extraordinarily bullish sign, showing a real sign of resiliency. I don’t think that happens though, least not anytime soon so I prefer to buy the US dollar as the Federal Reserve looks much more aggressive on the rate hikes front, and of course interest rates in the 10-year notes in America continues to rise. It’ll be volatile, but certainly looks as if the sellers will come back in and punish this market every time it tries to bounce.
Written by FX Empire