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The longer-term trend should hold.
The euro rallied again on Monday but continues to find resistance just below the 1.06 level. The 1.06 level is an area that continues to be important, and as a result, it’s likely that we will continue to fade in this general area. This is especially true considering that the 50-day EMA is right here as well, so a certain amount of technicality comes into the picture.
The interest rates in America continue to climb, and that is something that cannot be ignored, as it does make the US dollar much more attractive. On a break down below the low of the Monday session, I am more than willing to short this market, although I recognize it is probably going to be choppy than anything else. I’m not expecting clean moves at all, but that’s nothing new in the EUR/USD pair, because that’s the way it typically behaves.
If we were to break down below the 1.05 level, it’s likely that the market could drop another 100 points, but we need to see a little bit of momentum come into the picture in order to make this happen. Ultimately, if we break down below that level, the 1.04 level is an area that could be difficult to break through, as it is a bit of a “double bottom.” If we were to break through that double bottom, that could open up a move down to the 1.02 level, possibly even parity, which is my target by the end of summer.
However, if we do get above the 50-day EMA, it’s likely that the market could go to the 1.08 level. The 1.08 level is an area that’s been imported a couple of times, and it’s not until we break above that level that I would be convinced of the double bottom being confirmed. At that point, you could make an argument for a bit of a trend reversal, but I think it’s a bit early to anticipate that type of move. Interest rate differential continues to favor the US dollar, although the European Central Bank is looking to tighten a bit. It should be noted that the Federal Reserve is still going to outpace the ECB when it comes to monetary tightening policy. Because of this, the longer-term trend should hold.
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