Bounces on the test
The EURUSD entered the US session by making new lows for the trading day. In doing so, the price got near the low corrective price from last weeks post-ECB meeting price action. That level came in at 1.0788. The low just reached 1.0795 and bounced (see 5- minute chart below).
I am not totally surprised. The 1.0807-63 area had a number of swing lows going back to May and July (see daily chart below). In addition, there is that low corrective price from Friday's trading at 1.0788 that traders remember. The combination makes for an area for buyers to stick a cautious toe in the water. Shorts from above could take some profits. Shorts from below get to cover at a cheaper level perhaps. Buyers have a dip with defined risk (stop below 1.0788?) .
The move Thursday, squeezed the heck out of the shorts. Draghi on Friday tried to put a lid on the upside with comments he made in Washington. Meanwhile, Fed's Lockhart today repeated the idea that the dollar had priced in much of the tightening to try and prevent a runaway dollar going forward. So central bankers have differing views and objectives. The ECB certainly does not want a rising EURUSD to counteract any monetary policy changes. Meanwhile, the Fed feels the need to raise rates, but wants to have it's cake and eat it too by not having a rising dollar. So expect more of the same rhetoric going forward (especially from Fed officials).
For traders the water is more muddy after the big short squeeze. It is tough to forget the pain. There is also more fear. The drive to parity is not so clear cut anymore. So pay attention to the technicals. The test at the lows was just that...a test. The buyers came in and showed an interest at the level. The test will be for how long. Look for the 38.2-50% of the days range (at 1.0829-40 to be an area for sellers to test the buyers resolve. The 100 bar MA on the 5 minute chart is also near that area (see chart above). If the area can hold, the sellers are showing more muscle.
