The Euro rallied significantly during the trading session on Monday, as we approach the 1.20 level. The market looks likely to continue to try to break above the 1.20 level, as we would more than likely reach towards the 1.21 level after that. I believe that the 1.21 level will be much more significant than the 1.20 level, as it was previous resistance and should now be again due to historical action.
In the short term, I believe that we rally based upon the hammer that formed on the weekly chart. It is a very strong sign of support, and I think that perhaps the Euro is oversold if nothing else. I believe that a short-term bounce makes a lot of sense, especially as there are people out there willing to question whether the Federal Reserve will raise interest rates as it previously was thought to. I think that this is more of a technical bounce than anything else, and I suspect that the 1.21 level above is where the major barrier is. If we were to break above there, then the market could go much higher, but right now I believe that we won’t be able to do so in a single attempt anyway. If we turn around and rollover, a breakdown below the 1.19 level would signal that perhaps it’s time to start selling this pair again.
The British pound has rallied rather significantly during the session on Monday, reaching towards 1.36 level above, which has been resistance multiple times. When you look at the chart, you can see that we have rallied from a significant uptrend line lately as well, so it’s likely that we could continue to see buyers jump into this market and perhaps make a significant move towards a 1.3650 level. That’s an area that has been important more than once, and a break above there could send buyers jumping into this market for a longer-term move.
Ultimately, I think that if we do break above that level we will probably try to reach towards 1.40 level above, which on the longer-term charts is of course important from both a psychological and structural standpoint. I believe that we will continue to be a “buy on the dips” market, with the uptrend line underneath offering quite a bit of bullish pressure. If we do break down below the uptrend line, things could get ugly, perhaps reaching down towards the 1.30 level. Ultimately though, this market looks as if the buyers are starting to come back in and push rather hard.
It’s going to be choppy regardless, so keep that in mind. I would keep my position size somewhat small initially but add to it every time we move a bit higher. I like the idea of building up a larger position, but I would be cautious about doing that in one quick move. Longer-term though, this could be a nice investment opportunity.
The Australian dollar has been pretty choppy during the Monday session to start out the week, but that’s not a huge surprise considering how impulsive the move higher was during the previous week. I believe currently the 0.75 level is going to continue to offer support, and that’s assuming that we even reach towards that area. While the Australian dollar has been very soft as of the last couple of months, we’ve recently seen a strong bounce. When looking at the weekly chart, you can see that we had formed a massive hammer during the previous week, and it now looks as if we are trying to turn things around, at least for the interim.
I recognize that somewhere near the 0.77 level we should see a significant amount of resistance, so although I am a bit bullish in the short term, I recognize that we could turn right back around yet again. If we were to turn around and break down below the 0.75 handle, that would be negative enough for me to think that we would probably test the lows again over the previous week, which is near the 0.74 level. Break down below there would be extraordinarily negative and send this market much lower. I should point out that we had recently broken below the uptrend line that had been in vogue for so long, and that typically means that we will in fact see more selling pressure. However, that is an argument for later.
The US dollar has rallied against the Japanese yen during the trading session on Monday, reaching towards the ¥109.50 level. The ¥110 level offers a significant barrier that the market has been struggling to overcome, and the weekly chart has formed a couple of shooting stars in this area, showing the ¥110 level to be massive in its importance. This typically means that we will rollover and selloff, and I still think that is very possible. However, I recognize that if we break above the ¥110 level, especially on a daily close, that could send this market much higher and send the pair reaching towards the ¥112.50 region.
Ultimately, this is market that will be volatile, and of course highly sensitive to interest rate differentials and the bond markets. We’ve recently seen interest rates in America drop off a big, and that of course has sent this pair lower. However, on Monday it looks as if this is a rally based on a “risk off” attitude around the world. I believe that the market breaking above the ¥110 level will of course set up an entirely new dynamic in this market, with the ¥110 level starting offer significant resistance.
If we do start to break down, I recognize that the ¥107.50 level underneath is a very significant floor, as it was such a massive amount of resistance before the breakout above that level. I anticipate that we will continue to see a lot of volatility, and quite frankly I would wait for some type of impulsive move on the daily charts to get involved.