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Continues to Drift Lower into the Weekend

Even if the market bounces from the current support level, it’s likely that we will see a “fade the rally” type of market, which could ultimately lead to a breakdown. 

  • In Friday’s trading session, the EUR/USD attempted to rally but quickly lost momentum, leading to a lot of negativities in the market.
  • Given the volatile conditions, traders need to be cautious about how much money they invest at any given point in time.
  • Additionally, the 200-Day EMA is just below the current price level, which will likely attract technical traders.
  • This moving average is commonly used to determine the overall trend, so expect a lot of noise around this area.

Adding to the potential volatility, the last swing low was around the 1.05 level, which could also cause a lot of noise in that vicinity. Consequently, we may see a lot of back-and-forth sideway short-term trading. However, if the market breaks below the 1.05 level, it could trigger several sell orders, leading to much lower pricing, possibly as low as the parity level in the long run. The recent negative move matters from a longer-term standpoint, as the market fell apart from the 1.10 level, and the two candlesticks in that vicinity rarely happen in a vacuum.

Even if the market bounces from the current support level, it’s likely that we will see a “fade the rally” type of market, which could ultimately lead to a breakdown. It’s uncertain whether the breakdown will happen now or later, but traders need to keep in mind that when the market is in America’s control, it tends to go “risk on” as they choose not to believe the Federal Reserve and its monetary policy outlook. As long as the Federal Reserve remains tight, it’s difficult to imagine that the US dollar will suffer, especially when you have to look at the global outlook in general. The US dollar is quite often used as a safety currency when things get rough, and it certainly looks that with all the tightening around the world, things are about to get rough.

Beyond that, demand for the US dollar continues to skyrocket as countries that take out debt in US dollars are facing higher interest rates, trying to pay them off as quickly as possible in this environment as debt becomes much more expensive. The 200 Day EMA underneath the course will continue to cause noise, but once we get below there the bottom should fall out of this pair and we could go much lower.


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