Summary
The euro shows a modest early-Monday rally but remains locked in a broader downtrend that began after the September FOMC meeting. Price action between key EMAs, questions around Fed policy, and historical dollar behavior support a bearish outlook unless 1.17 breaks.
Euro/US Dollar
The euro has rallied just a bit during the early hours here on Monday, November 24th, but it’s worth noting that we have been in a somewhat consistent downtrend since the September FOMC meeting. That to me is one of the biggest clues as to what happens next.
Downtrend Context Since the September FOMC Meeting
We will get the occasional pullback and it’s possible that we have just formed a higher low, but at this point I would also watch the 50 day EMA above where the downtrend line is currently residing. This downtrend line, depending on how you draw it, basically started from the day after the September FOMC meeting and has held pretty true since then.
We are between the 50 day EMA and the 200 day EMA, which can cause some volatility. But really at this point in time, I think there’s a lot of what will the Fed do? What won’t the Fed do? What I find interesting though is there’s a historical precedence for once the Fed starts cutting, the US dollar starts strengthening and we start to see trouble around the world. And that’s because if they are cutting, there’s always the question of what do they know that we don’t know?
And the US dollar of course is considered to be a safety asset. It is worth noting that money is going into bonds, not out of bonds, and that requires US dollars. As things stand right now, I like fading the rally. It’s really not until we break 1.17 that I begin to think about the upside. And with a move like we’ve seen early on Monday, this is just another candlestick that shows a little bit of pop, but these generally have been squashed as of late.
The target to the downside, just being lazy, you could say the 200 day EMA at the 1.1420 level or the 1.14 level where we had seen significant support previously. Breaking that opens up a move to 1.11, which would not be overly surprising to me if we see it. Although I don’t think we get there in the next couple of days. I think this is something that probably takes a few months to play out, possibly even six.
This is a pair that doesn’t move very quickly. So with that being the case, I’m watching this rally on Monday, waiting to see if we get some exhaustion. I’ll just start selling again.