The EUR/USD pair fell during the course of the day on Wednesday, breaking below the 1.28 level. However, the 1.28 level is in the isn’t the be-all end-all of support, it is just simply a major spot on the chart as far as long-term charts are concerned, with a significant amount of support going all the way down to the 1.2750 level. With that being the case, the market seems as if it’s ready to try to break down, but I’m not ready to start selling quite yet. Rallies however would offer nice selling opportunities as we will more than likely have to pick away at this massive support region.
Not only is 1.28 a large, round, psychologically significant number, it is also the 61.8% Fibonacci retracement level from the larger move higher, so therefore we think that the markets will recognize it as supportive from that standpoint as well. Although we certainly believe that the Euro is going to continue to weaken over time, we believe that ultimately it’s going to take a significant amount of momentum were some type of event to break down below this area. Nonetheless, no matter what reason we break down below here with any significance that will be a sign that the market is going to fall apart over the next several months.
Ultimately, it appears that this market could drop as low as the beginning of the move higher, which is the 1.20 level. That is a massive move from here, and obviously it will be very choppy between here and there, but ultimately we think that is very possible at this point in time. After all, the European Central Bank is going to have to continue to loosen its monetary policy, while the Federal Reserve of course continues to tighten its policy via cutting back on quantitative easing. We are probably a long way away from tightening of interest rates by the central bank in America itself, but by becoming “less easy”, it essentially accomplishes the same thing, especially against the Euro as the ECB is moving in a completely different direction.
