The Euro broke down a bit during the course of the week, as it may have gotten a bit too far ahead of itself based upon the parabolic nature of the trend. Regardless, this is a market that continues to see a lot of people trying to short the US dollar, but with interest rates spiking the way they have during the course of the week, that does favor the greenback. This might be a short-term phenomenon though, just due to the fact that so much stimulus is proposed. At this point, people start to sell the 10 year note in America, which drives up interest rates.
EUR/USD Video 18.01.20
To the downside, I think that the 1.20 level should offer a significant amount of support though, and this pullback is probably exactly what we need. After all, the 1.23 level above has been significant resistance extending all the way to the 1.25 level from what I can see. Ultimately, this is a market that I think will need to back up in order to break out above that level, which would take a significant amount of momentum. However, if we turn around a break down below the 1.19 level it could be rather ugly for the Euro going forward.
All things being equal, I suspect that we are simply going to go back and forth between these two levels as the market needs to work off some of the excess froth that had been part of the trend for so long. All things been equal though, I think that we will eventually have to make a longer-term decision. In the meantime, it is all about the interest rates going all over the place so volatility will continue to be a problem.
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This article was originally posted on FX Empire