The EUR/USD pair rose during the session on Monday, breaking back above the 1.34 handle at one point in time. In fact, the market looks like it’s ready to try and attempt to reach the 1.35 handle again, which of course was such significant support previously. This is a basic tenet of technical analysis, as the support should become resistance going down the road, once it gets broken down.
Going forward, we think that this market could go as high as 1.35, but resistance should be fairly strong in the general vicinity, and that’s exactly what we are waiting for at the moment: a nice resistive candle to start selling in this area. If we get that, we are more than willing to start selling the Euro as the Federal Reserve looks to be much closer to tapering off of quantitative easing than Europe is to raising rates again as the surprise rate cut on Thursday out of the ECB was so unexpected.
The only way that we would consider buying this pair is if something comes out that puts the ability of the Federal Reserve to taper off of quantitative easing in some kind of doubt. Technically, we believe that the 1.3550 level needs to be cleared on a daily close in order to even consider that as well, and as a result would lead to the 1.38 handle. However, the looks extraordinarily unlikely at this moment, and as a result we think this bounce may simply be an opportunity to sell at a higher rate, and have the market pick up momentum to the downside in order to break the gap from the early part of September that we bounced off of during Thursday’s trading last week.
That area should be supportive, but eventually it will get broken through if this momentum keeps up. Because of this, more people selling at a higher level really should push his market down and make a serious attempt at breaking down the market in general. We do recognize that there will be a lot of volatility though, so unless you are willing to hang onto this trade, you should avoid it.
Written by FX Empire