The Euro fell early in the Friday session, but then turned to show movement signals once once more, as we ended up forming a hammer. The hammer is of course a bullish candle and shows an upcoming potential reversal. This reversal will be short-lived, and I think it will only extend towards the 1.04 level at best. After all, this was an important area for several weeks before, and now that we’ve crossed it, it looks like the “market memory” effect might emerge and offer resistance.
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The yen is a common asset during troubled times
An alternative scenario is that we simply break out of Friday’s candle, which is a real possibility as well, because we will have to believe that a certain amount of upward pressure in this pair was likely to cover short positions as the weekend approaches. If this is the case, parity is almost guaranteed. I think we’ll get back to parity with time anyway, but I’m the first to admit that we got here a lot faster than I expected. Frankly, the destruction of the euro was impressive.
If we can break below the parity level, and at this point, I don’t know any reason why we should not, it is likely that we will see the Euro into a deeper downward spiral, and it might become a major trend continuing all the way to the 0.85 level. With this, let’s not get ahead of ourselves, because in these extreme cases, markets tend to find some kind of reason to turn. After all, there are already people in New York calling on the Fed to start easing monetary policy once more, and if they do, the whole dynamic of this currency pair will change.
Frankly, the only thing that can save the euro at the moment is if the Fed loosens monetary policy, or the European Central Bank decides to tighten it. It is true that the European Central Bank is likely to raise interest rates by 25 basis points this fall. But realistically, that is all they can do, because the European economy is very fragile, and of course they have problems with energy production, which is not exactly a bullish thesis for the region.
The chart was generated by . platform TradingView
