The Euro initially attempted to strengthen during Thursday’s trading session, but then broke down below the 1.12 threshold. So now one wonders if this was a real move or simply a lesser profit taking because the EURUSD was overloaded; it is a bit difficult to make this distinction because it happened just after New Year’s Day, meaning that liquidity is somewhat suspect. All things considered, a couple of different scenarios can arise, so the market is very difficult to negotiate.
One of the main characteristics of the euro is the fact that, compared to the US dollar, it is visited by high frequency trading and therefore tends to be extraordinarily unstable. Retail traders are being sucked in by this pair due to the fact that it has a low spread, but unless you are scalping the market, it really doesn’t make a difference. That said, the low spread is exactly why so many computers are currently trading this pair.
The pair had recently passed the 1.12 threshold, eventually ending up forming a shooting star on the 1.12 threshold. This is obviously a negative sign but, along the way, we have seen the market go beyond the exponential moving average of 200 days as if it were not even there, and then formed a couple of “higher lows”. We had also formed a “higher high”, so this is theoretically bullish. However, the pair failed at 1.12 in a bearish move, so the situation will continue to be problematic.
A potential trend change could be discussed, and I am certainly willing to consider it, but the reality of things is often quite different from what we think. If we can get past the top of the shooting star formed in the previous session, the market will most likely look towards the 1.14 threshold over time. However, if we fall below the explosive candle printed last Friday, the market will likely drop to the underlying level of 1.10. I’d stay out of this pair for another couple of sessions, because obviously we’re getting ready to make some kind of move.