Well, where do we start on the EUR/USD? The first thing that sprung to mind upon opening the charts this morning was simply, ‘wow’. Fundamentally, we believe the reason behind yesterday’s rally comes from the recent decline in the stock market. With the ECB’s interest rates close to zero, stock market investors have been buying up Euros to invest in U.S. dollars. Consequent to what some analysts are now labeling ‘Black Monday’, investors are now selling U.S dollars to pay back the Euros they bought, thus pushing the EUR currency higher.
From a technical standpoint, however, the weekly timeframe shows that the market surged close to a whopping 300 pips yesterday! This saw the EUR currency breach weekly supply at 1.1532-1.1278, and just miss connecting with an ignored weekly Quasimodo level at 1.1745. Moving down to the daily timeframe, we can see that this recent buying has broken above two major daily Quasimodo resistance levels (1.1385/1.1447), which hit and extended past a daily supply zone at 1.1678-1.1606.
Slipping down to the 4hr timeframe, it is clear to see that price has, dare we say it, begun to stabilize at the psychological resistance 1.1700, and is now trading below 1.1600 as we write. With regards to trading this pair today, we feel that this market will likely correct itself. However, is this feeling strong enough to place a trade? The short answer to this is, no. It is very difficult to say how this market will react today to yesterday’s volatility. That is why, especially in times of economic uncertainty, it pays to act in your own best interest by staying on the sidelines!