Exhaustion candles will signify the opportunity to start shorting again and following the overall trend.
For the third day in a row, the market has pulled back just a bit, but it seems as if we are going to continue to see buyers in the region of the 1.0975 handle. This is an area where the market has bounced from three days in a row, so that is a relatively strong sign. If this is going to continue to be the case, we may make a push towards the 1.11 level above, where I expect to see significant resistance start to assert itself.
The 1.11 level begins resistance that extends to the 1.12 handle, with the 50 Day EMA being in the middle of this range suggests significant resistance. The market has been in a downtrend for a while, so I do think that rallies at this point in time would still have to be treated with a certain amount of suspicion. Because of this, I will wait to see whether or not we get a rally that shows signs of exhaustion. These exhaustion candles will signify the opportunity to start shorting again and following the overall trend.
That being said, if we were to break above the 1.12 handle, at that point I think the market is likely to go looking towards the 1.1350 level, and then possibly even as high as 1.15 handle, where the 200 Day EMA sits just below. That would obviously be a very bullish sign, so I would have to reassess the longer-term trend at that point. However, the interest rate differential between the European Union and the United States remains rather wide, and long been the case I think it is likely that the US dollar will become much more attractive than the Euro on any given trade. It will be interesting to see how this plays out, but I think one has to assume that the trend will continue because longer-term it is more likely than not to continue, especially in this pair which is at times horrifyingly dull.
The 1.0850 level underneath could be a target if we do break down below those three candlesticks, as it could open up a move to the downside. At that point, we would be breaking significant support, which of course would be a sign of a continuation and therefore I think we would probably be jumping into the trade at that point.