On Monday the 28th of May, trading on the single currency closed down. It dropped to 1.1607 during the European session. Market volatility subsided during the US session Due to the fact that both the US and Canada has public holidays. Buyers, taking advantage of the off day in the US, managed to stop the EURUSD pair from falling and induced a recovery to 1.1633.
The euro shed a total of 121 pips to reach 1.1607, erasing all its morning gains on the back of increased political turmoil in Italy. Investors shorted the euro after the leader of the Five Star Movement party called for the president of Italy to be impeached.
Day’s news (GMT+3):
Fig 1. EURUSD hourly chart. Source: TradingView
On Monday, I was expecting to see the EURUSD pair trading flat, but what we got was an excellent session trend. Since I wasn’t expecting this, I stayed out of the market.
Surprises from politicians turn up in the media unexpectedly, which makes technical analysis useless in these situations. When geopolitics wields its influence on the markets, it’s impossible to know when prices will stop falling or growing.
The quicker the political crisis in Italy gets resolved, the quicker the euro will strengthen. We could at least see a correction up to 1.1800.
The drop stopped between the 90th and 112th degrees. Our pair is now in a correctional phase. My forecast shows the correction continuing to around 1.1680. In any case, it’s better to short the euro along with the trend after any rebounds.
Since the rebound from 1.1607 was insignificant, sellers could make it to the 112th degree in today’s European session. The area between the 112th and 135th degrees is good rebound territory; just look at the one from the 23rd of May.
Before I could even finish writing this review, the bears have made it to the 112th degree at the beginning of the European session, bringing the rate down to 1.1603. The yen, franc, and gold are all trading up. This means that investors are starting to retreat to the safe haven assets. I’m going to stay out of the market until the situation becomes a bit more understandable. Remember that it’s much safer to start selling after a correction, because the euro has been dropping for the last 30 days, and it could reverse upwards at any time. You can ignore my projected ascending triangle on the chart.