EUR/USD Forecast: Gapped Lower, Bounced and Recovered

The Euro got hammered right off the bat on Monday morning, gapping down to reach towards the 1.1121 level. However, it has since rallied to reach as high as 1.1243, before pulling back towards the 1.12 handle. The volatility is going to be a major problem with this market, as the Euro will be directly affected by the Ukraine/Russia issues. Beyond that, if Vladimir Putin decides to shut off the natural gas heading into the European Union, it will almost certainly have a major influence on the economy in a strong and negative way.

The next move will be important, and if we break down below the 1.11 handle, then we could go looking towards 1.10 level underneath. The 1.10 level underneath the current trading area is a very significant support level based upon the large, round, psychologically important aspect of it. On the upside, if we break above the top of the candlestick from the Monday session, we could see an attempt to reach towards the 50 day EMA which will attract a lot of attention in and of itself. It is also worth noting that the 50 day EMA is sitting just above the 1.13 level, which is a significant area of noise over the last month or so.

You should also keep in mind that the US dollar strength or weakness will have a lot to do with what happens here, as this is essentially half of the US Dollar Index. If this pair starts to rise, you may get more traction against the US dollar in other markets, because the Euro tends to be choppy under normal circumstances, making it very difficult to profit from at times.

The market is in a downtrend from a longer-term standpoint, so that is something that you need to also be cognizant of as well. I do believe that we will eventually see a bigger move, but right now we just have so much in the way of noise out there that it is almost impossible to trade with any type of conviction in this pair. More often than not, when the markets behave like this, I will use the EUR/USD pair as an indicator of US dollar strength or weakness to trade other currency pairs. Expect choppy behavior but I still favor shorting rallies that start to run out of momentum.