EUR/USD Forecast: Euro Gives Up Early Gains After BCE
The market breaking down below the parity level opens up massive selling, and I will see it as being a trigger if we get a daily close below that level.
The Euro initially shot higher during the trading session on Thursday in reaction to the ECB raising interest rates by 50 basis points. This was higher than anticipated, as the market had priced in 25 basis points. However, as soon as Christine Lagarde started talking, the Euro started falling. She suggested that the central bank will continue to be “data dependent”, which means that they are noncommittal.
If we break down below the bottom of the candlestick for the trading session on Tuesday, then it opens up the possibility of a drop back down to the parity level. The parity level is an area that I think will attract a lot of attention, as it is so psychologically important. Furthermore, we had bounced from there, and now that we ended up forming a bit of a shooting star for the trading session, I suggest that it’s likely we will see further downside pressure, so, therefore, I think anytime we get a little bit of a short-term rally, traders will jump in and start punishing the Euro again.
The alternate scenario of course is that we can break above the highs of the last three days, opening up the next leg higher. That being said, I think we will find even more resistance at the 1.04 level, as it was such an important support level previously. At this point in time, I think the market is likely to see an opportunity to pick up “cheap US dollars” one way or another. The EUR/USD currency pair has a lot of downward pressure on it, and I just don’t see how that changes anytime soon. The fact that we could not even hang on to the gain after a surprise interest rate hike tells you almost everything you need to see.
The 50 Day EMA sits just above the 1.04 level and is dropping. Ultimately, the market continues to see a significant amount of negativity, and therefore it’s likely that we continue to see more of a “fade the rally” situation. The market breaking down below the parity level opens up massive selling, and I will see it as being a trigger if we get a daily close below that level. Until then, I think you fit short-term rallies and take your profits as they come.
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