This is a market that will continue to fade rallies and push lower.
The euro initially tried to rally on Friday but gave back gains to show signs of hesitation. The 1.06 level continues to be a massive barrier that traders cannot get beyond, and even if we did break above there, it is likely that we will find plenty of reasons to short this market.
If we can break above the 1.06 level, then it is likely that we will go looking to reach the 50-day EMA. After that, the 1.08 level would be massive resistance as it was significant support previously. The “market memory” attached to this level will attract a lot of attention. That being said, I do not think that we will go that high in the euro, as there are plenty of reasons to believe this market will continue to drop.
The overall downtrend continues to be strong, and I think will accelerate given enough time. After all, the European Central Bank is in no position to tighten monetary policy, especially as we are already starting to see signs of a potential German recession. Because of this, I think that it is only a matter of time before the euro falls, due to the fact that the ECB will have to keep monetary policy loose for quite some time.
The 1.05 level would attract a certain amount of attention, as it had previously been supported. However, if we break down below there it is likely that the euro will go looking to the lows again, near the 1.0350 level. If we break down below there, then it is likely that we will continue to go much lower, based upon the overall trend and the bearish flag that we had formed previously. In fact, we are retesting this area, so one has to take a look at that as a potential reason to short the market as well.
Based on the “measured move” of the bearish flag, it is likely that we will go looking to the 1.01 level. After that, we could go looking to the parity level. This is a market that will continue to fade rallies and push lower, especially as Jerome Powell has made it abundantly clear that the Federal Reserve is perfectly fine with the markets being broken, meaning that they will stay tight for quite some time.