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You have to be very cautious when you short the Euro, but I believe that a move below the 1.05 level then gives you the “all clear.”
- During Wednesday’s trading session, the EUR/USD currency pair traded in a range, hovering just above the 1.06 level.
- This level has been critical in the past, and the market is currently stuck between the 50-Day EMA above and the 200-Day EMA below.
- With the market between these two moving averages, we can expect choppy and sideways trading, given the uncertainty surrounding Federal Reserve policy.
The FOMC Meeting Minutes set to release later on Wednesday, which will provide an insight into the Federal Open Market Committee’s plans going forward. There is significant debate over whether the Federal Reserve will continue hiking rates, and for how long they will maintain their high rates. The market is unlikely to see anything easy, but if we break below the 1.05 level, it could lead to a significant move lower. This would remove support and trigger a “fear of missing out” trade to the downside, leading to a quick drop to the parity level.
On the other hand, if the market rallies from here, it could potentially reach the 1.08 level, which has seen considerable resistance in the past. The 1.08 level is just below the significant selloff previously, and any substantial rally from here would provide a good opportunity to sell on signs of exhaustion. However, it’s essential to keep in mind that if the Federal Reserve takes a softer stance, it could lead to a much higher market. With that in mind, we will have to be very cautious about position sizing, but I still believe that the Euro is running unlimited time. A breakdown below the 1.05 level would have me getting rather aggressive, and that is my plan eventually. However, I recognize that there have been several times in the past where the Euro seems to find a lifeline, so you have to be very cautious when you do short that Euro, but again, I believe that a move below the 1.05 level then gives you the “all clear.”
If we were to turn around a break above the 1.10 level, it would obviously be a very bullish sign, and I think at that time it would kick off the longer term “buy-and-hold” type of rally for the Euro, but I just don’t see that happening anytime soon. The market will remain choppy more than anything else, and unfortunately you will probably have to focus on short-term charts for entries and exits.
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