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Euro To Fail Above 1.14

Currencies / Euro Sep 14, 2015 - 11:33 AM GMT

By: Richard_Cox

Currencies

Currency markets have had difficulty in showing much consistency over the last few weeks of the summer but now that markets are once again returning to full strength it it more likely that we will start to see a resumption of the broader global trends.  The Euro will continue to be one of the most important assets to watch in this class, given the fundamental uncertainty that still surrounds a good portion of the region. 


We have started to see moves higher in key indicators like the EUR/USD.  The currency pair is now trading above the 1.14 mark, and this has tripped stop losses for many bearish traders looking for an opportunity to sell into strength.  But when we look at the proximity of important historical resistance levels, it becomes much more difficult to believe that these trends truly represent what is actively happening in the market.

Chart Outlook:  EUR/USD

In the chart below, we can see that the EUR/USD is now coming into Fibonacci resistance levels that fall roughly in-line with historical resistance just below 1.15.  This means that the latest rallies should be viewed with some degree of skepticism given the lack of momentum that has accompanied each move higher.  We are also holding below the important support line that was created last April and this ultimately suggests that the overriding momentum continues to hold in bearish territory.

Chart Source:  Mocaz

When we take this chart activity in combination with the fact that the Federal Reserve has expressed an active interest in raising interest (at least once) before the end of this year, short positions and put options start to look much more appropriate for those looking to gain some type of market exposure in the EUR/USD.

Higher interest rates are not likely for the Eurozone for quite some time, so if you are looking to establish long-term positions in these markets then the path of least resistance is clearly to the downside in the Euro.  One element that would change this stance would be if we started to see voting members of the Fed start to suggest rising interest rates would damage an already-vulnerable economy. 

This would suggest that the Fed is becoming more reluctant to actually pull the trigger and start normalizing its interest rate policy.  This would likely bring panic selling back into the Dollar and the move would be large enough to send the EUR/USD convincingly through historical resistance at 1.15.  These are all factors that should be watched as we head into the post-summer trading sessions. 

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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