The EUR/USD pair fell initially on Monday, perhaps in response to the referendum in Catalonia for independence. Spain is going to continue to be an issue, because the scene there is getting ugly. The fact that we have sold off isn’t as much of a surprise as one would think though, as the initial gap signaled that we were going to do so. In fact, we rallied to fill that gap and then fell from there, a classic technical analysis move. The 1.1725 level has offered support again, and I think the 1.17 level itself is rather supportive. A breakdown below there should have this market looking for the psychologically important 1.15 level, which is even more supportive. We have not retested that area, so break down the there is feasible, even in the middle of a strong uptrend.
If we break above the 1.1775 level, I think we will go looking towards the 1.1850 level again. This is a market that had recently fired off a signal by breaking out of an almost three-year consolidation area. That consolidation area breaking out suggested that we were going to go to the 1.25 level, which we obviously haven’t gotten to. I still believe that move probably happens, but this is probably a move that’s going to take months, if not a couple of years at this rate. I think that buying the dips continues to be a viable strategy, but I also recognize the headlines will move this market rather rapidly as per usual. There are a lot of moving pieces when it comes to the European Union right now, although the European Central Bank looks likely to step away from quantitative easing, which of course will help the value of the common currency.
Written by FX Empire