Euro pulls back towards support
During early trading on Friday, the Euro has initially tried to shoot to the upside but then turned around to show the 1.1250 level as support. This area is clearly marked on the chart as a 50 point range, extending down to the large, round, psychologically significant figure of 1.12 just below. Beyond that, we also have the 50 day EMA which is starting to turn higher and will more than likely offer a bit of support as well.
The Euro has bounced back and forth the show signs of life over the last several weeks, forming what essentially looks to be the beginning of a “W pattern.” This of course is a major reversal signal and could attract a lot of attention in a marketplace that quite frankly has had the recent change of heart by the Federal Reserve as far as monetary policy is concerned. It looks as if the Federal Reserve is getting ready to become quite a bit more easy when it comes to monetary policy, and that of course should work against the value of what is most certainly in an overextended US dollar.
Dollar weakness, not Euro strength
Don’t get me wrong, it’s not that I’m calling for extreme Euro strength, because quite frankly the economic numbers don’t match up for that. The ECB remains loosen its monetary policy, so while this pair is starting to rally, it will be somewhat muted. This isn’t so much a matter of the Euro strengthening for economic reasons, rather it is the US dollar losing some of its luster.
Having said all of that, the US dollar does tend to do reasonably well in times of economic weakness, because people will do things such as buy treasuries, which of course are denominated in those very US dollars. With that in mind, that will keep this market somewhat slow and grinding, but you will notice that is the basic MO of this pair anyway.
Levels to watch
As I mentioned, the 1.1250 level has offered a bit of support during the day. We also have the 50 day EMA which is starting to turn higher and that will attract a certain amount of attention as well. Below there, we have the 1.12 handle, which has the 61.8% Fibonacci retracement just underneath it. It is because of all of these levels and the recent surge higher that I believe we are starting to try to change the overall trend.
To the upside, I believe that we have a 50 point resistance barrier that starts at 1.1450 level and extends to the psychologically significant round figure of 1.15 after that. If we can break above there, then the market will have most certainly change the overall trend, and we will start to see a big move higher. Over the course of the summer, I anticipate that we are going to grind slowly towards those resistance barriers above.