During the session on Tuesday, we initially tried to rally in the EUR/USD pair, but ran into quite a bit of trouble at the previous uptrend line. This invoked a phenomenon known as “market memory”, where previous support becomes resistance and vice versa.
Simply put, certain areas tend to cause reactions again and again. As this was previously supportive, it makes sense that it is now resistance. In fact, I’ve been talking about this uptrend line for a couple of sessions now.
Now that we have seen this market fall from here, I think that given enough time we will roll over in the EUR/USD pair. The pullback certain right at the 50% Fibonacci retracement level, from the reaction to the so-called “Brexit” vote. I think that the European Union’s future has to be in question at this point in time, so it would make a lot of sense for people to be much more comfortable owning the US dollar.
EUR/USD technical analysis: drifting lower
While I do not necessarily think that this market going to fall apart, I do think that we are going to test the lows from the recent break down. With this, I believe that we will test the 1.09 level first, and then perhaps even go lower than that.
I believe that the US dollar has just been given a bit of a reprieve due to the vote in the United Kingdom, but I also recognize that the euro is going to be at least somewhat resilient. After all, it is getting a bit of a natural bid in the EUR/GBP pair, and that does have a bit of a knock on effect over here.
I continue to sell short-term rallies and show signs of exhaustion and of course a break down below the bottom of the range for the day on Tuesday. I don’t really have any interest in buying this pair until we break back above the previous uptrend line, which at this point in time would even have me a bit skittish going long anyway. It just makes more sense for this pair to fall, so I am much more comfortable shorting.