Euro Ready For a Retracement

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US Dollar
  • Euro pulling back from 50% Fibonacci retracement
  • 200 EMA above
  • Longer-term downtrend

The Euro has fallen a bit during trading on Tuesday, breaking below the 1.1150 level again. This is an area that features a 50% Fibonacci retracement level, from the most recent impulsive move lower. Ultimately, the market is likely to pull back from a very parabolic move in the last few weeks. Simple exhaustion and gravity will come into play at this point, is a market cannot sustain this type of momentum for very long. That being said, to understand what the Euro is going, you need to look back for the last 18 months or so.

Downtrend

The downtrend continues longer-term and looking at the last 18 months it becomes apparent that the market has been in a downtrend for quite some time, occasionally breaking above the 50-day EMA as we just have. However, the 200-day EMA is an area that the market continues to pull back from, as we have seen, so at this point, it makes sense that the 200-day EMA will continue to define the downtrend. There have been several attempts to break above the 200-day EMA, with minor success but ultimately the level continues to push lower.

Technical analysis

The technical analysis for the pair is relatively straightforward as the 200-day EMA defines the negativity, and the 50% Fibonacci retracement level attracts a lot of attention. The fact that it had been parabolic getting to that level suggests that there should be some type of pullback, if not complete reversal. Ultimately, this is a market that has gotten far ahead of itself, because although the Federal Reserve is likely to cut interest rates this month, the reality is that the European Union has to deal with Brexit and of course the potential of a significant recession.

we have a long way to go before turning the entire trend around.

The 200-day EMA is sloped lower, and although the 50-day EMA is underneath and starting to curl a little bit to the upside, the reality is that we have a long way to go before turning the entire trend around. That being said, the 50-day EMA could very well be the next target for the short-sellers, as it should be somewhat supportive. However, if we were to break down below there then it’s very likely that the 50% Fibonacci retracement level sets up a move down to the lows, which could be the 1.09 level.

Trade going forward

The trade going forward is likely to simply be shorting this market as it is a longer-term downtrend that is still very much intact and is now starting to offer “value” in the US dollar. The US dollar is still the most important currency out there right now, especially with the massive amounts of “risk-off” possibilities around the world. As long as that’s going to be the case is very likely that this pair will eventually drift lower. That being said, if the market does break above the 61.8% Fibonacci retracement level, then it could leave the downtrend and go looking towards 1.14 level next, which is a 100% Fibonacci retracement level. However, that is the least likely scenario.

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