The EUR/USD pair has been a real pain for a lot of traders over the last couple of years. One look at the monthly chart attached, and you can see that we aren’t really in a consolidation area, (rectangle) but we are in something that look consolidative with a slightly negative attitude. In other words, this is an ugly chart.
The pair is going to continue this behavior, but I think that we are going to see a push to the 1.45 level sometime in the first six months of 2014. The pair is driven primarily by the focus of the markets. What I mean by this is that it seems that the market will focus on the troubles in America for a few months, and then shift to the troubles in Europe the next several months. It is a bipolar market at best over the last couple of years, and as a result a lot of the traders I speak to have found other “favorite pairs.”
The Federal Reserve and jobs in America. The European problem with deflation.
The Federal Reserve is still looking into the possibility of quantitative easing, and are worried about the employment situation in America. This one problem is enough to keep the central bank from tapering for the time being, but the November jobs number came in stronger than anticipated. This can be a reason to tighten monetary policy, but the Fed can’t do anything about it right away. One would think that several stronger than anticipated months need to happen. It is because of this that I think tapering simply cannot happen before March, and more than likely later than that.
On the other side of the Atlantic, there is growing concern over deflation in Europe. This screams monetary policy easing to me, and I think we will see it in a few months. However, we need the combination of stronger jobs numbers in America and deflation to send this pair back down with any real strength. Because of this, I think this pair doesn’t really break down until the middle of the year sometime. In other words, we are going back and forth again. I think 1.45 is the top, and the pullback could even be as low as 1.20 or so, although I think 1.20 is probably sometime in 2015.
