Euro showing signs of life on Friday

Alan Penny

29 March 2019

3 min read


As the Americans pick up the ball, it looks as if the Euro is going to be saved unless something startling happens in the United States. After all, we have reached down towards the 1.12 level, an area that is the bottom of a larger consolidation area that I have marked on the chart. While still a bit early, it looks as if we could be getting ready to form a bit of a hammer, which of course is a very bullish sign.

The backdrop

Obviously, using technical analysis is simply looking at history itself, and in this case the most recent history suggests that the 1.12 level should continue to be important. John that, the most recent high has been higher than the one before it, struggling only once we reached the 200 day EMA. If we can hold here, then we would have a higher level, and it looks as if we are starting to change the trend.

Using the phrase “change the trend” might be a little bit misleading though, because there is a massive amount of resistance above that starts at the 1.1450 level. While not likely to be a longer-term signal to go into the Euro with both feet, this could be a nice signal for the Euro to recover quite a bit.

Central banks

Both central banks that are involved in this pair are extraordinarily dovish currently. The European Central Bank has already pushed the idea of interest rate hikes back, and people are starting to price in the almost inevitable recession in the European Union. In other words, the ECB is going to be on the sidelines and has even started to do some liquidity measures again. If that’s going to be the case, it’s likely that the Euro is going to struggle.

However, on the other side of the Atlantic Ocean we have the Federal Reserve. While once thought as the only hawkish central bank in the world of importance, suddenly we have seen a complete turnaround in the attitude of the Fed. We now know that they won’t be raising interest rates in 2019, and that of course is a bit of a weight around the neck of the greenback.

Simply put, both of the central banks are on the sidelines. With that being the case we need some type of push in one direction or the other two breakout. Currently it doesn’t look as if there’s any reason for this market to either break out to the upside or break down below. That doesn’t mean it can’t, it just means that there doesn’t seem to be much in the way of desire to throw a ton of money into this market turned with that being the case, there’s only one thing you can do.

Play the market that’s handed to

Looking at the market, it appears that we are simply sticking to the range that we have been in. If that’s the case, there’s no need to fight it, and there’s certainly no need to try to “outthink the market.” If there are buyers down at the 1.12 handle, and Sellers near the 1.1450 level, then you have a couple of levels to play off of. If we break out of this range, then there is roughly 300 points waiting to be had in whichever direction we break. Sometimes, it pays to simplify your trading.

euro chart

EUR/USD daily

Written By
Alan Penny

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