The EUR/USD pair tried to rally during the session on Wednesday, but as you can see it pulled back enough to form a little bit of a shooting star. Granted, the shooting star isn’t necessarily the most beautiful shooting star, but it does represent the fact that the market will more than likely struggle to get too much farther than where we presently are.
We have stated in the past that we think the 1.33 level is an area that a lot of resistance should come into play. The red downtrend line from the weekly timeframe also should offer a lot of resistance as well, and because of this we think that a sell signal could form fairly soon. We are going to ignore this particular candle, but we do recognize the fact that the market seems to be running out of steam after printing a massive green candle two weeks ago.
Be aware the fact that the Federal Reserve and its quantitative easing program is at the front and center of what this market is about to do. Because of this, we think that it will be headline driven, but in the end we believe that the long-term descending triangle should prove to be true, and the market will crash below the 1.28 handle. If it does that, we think this market goes down to 1.22 over time, and this will probably have to do with the Federal Reserve tapering off of the quantitative easing. This of course is a prelude to higher interest rates possibly, and with that in mind, the interest rate differential shrinks between the two economies.
On top of that, the US economy is doing much better than the European one, so it makes sense that this pair would fall over time. There are a lot of if’s and’s or but’s, but going forward until we crack above the downtrend line on a daily close, we think that it’s a bit dangerous to be buying the Euro up in this general vicinity. As far as selling is concerned, we think there is going to be a little bit of sideways action before we get that true signal.
Written by FX Empire