I think we are more likely than not going to see a lot of chop, with more of a proclivity to drop.
The euro initially fell on Wednesday only to turn around and rally again. The 1.05 level looks to be offering significant support, at least in the short term. Underneath, there was a “double bottom” that formed, and it’s possible that people are trying to front-run the Federal Reserve and the fact that it will have to change its opinion on monetary policy sooner rather than later. Furthermore, there has been a bit of chirping out of the ECB that they may have to tighten interest rates.
If that is in fact going to be the case, then the euro will more likely than not recover a bit. Having said that, this is a market that continues to be very noisy, as is typically the case. This is one of the worst pairs to trade, because most of the time it goes back and forth with no real directionality. This is why you need to look at it from the prism of a longer-term trader, which still looks at this as a major downtrend.
I believe that the 50-day EMA above will continue to cause headaches, and if we approach that area, I would anticipate that there is probably a certain amount of resistance to be found in that area. If we break above there, then the 1.08 level becomes an even bigger problem. Ultimately, it would take quite a fundamental shift in attitude to make that happen, but the volatility of this market and everything else is so out of control right now you cannot bank against anything. Because of this, I think we are more likely than not going to see a lot of chop, with more of a proclivity to drop. If we can break down below the 1.04 level again, that could open up a move down to the 1.02 level, and then possibly parity. I do think that parity is a very real possibility sometime later this summer, as many of my contemporaries feel the same way. Rallies are not trusted right now, and I think that will continue to be the case as there are so many concerns when it comes to the global growth situation. As long as there are concerns about global growth and economy slowing around the world, there’s always going to be demand for US dollars.