The Euro has been very soft during most of the month of July, and as we head into the month of August, we are sitting at the 1.11 region. We are awaiting the Federal Reserve interest rate statement, and that of course is a very important factor as to where we go next. Keep in mind that it’s not necessarily about an interest rate cut, but it’s more about how the Federal Reserve frames the idea of their interest rates longer term and going forward.
I do believe that the Federal Reserve is not only going to cut rates on July 31, but I also believe that they are going to be extraordinarily dovish in their statement. At this point, if they continue to show that extraordinarily dovish stance, then the market should rally from here, using the 1.11 level as massive support. However, we should always look at the opposite scenario as well, because as we know markets rarely do what we think they are going to do.
If we were to break down below the 1.11 handle, then it means that the Federal Reserve disappointed and it looks as if the United States is going to continue to be either tight, or a lot less loose than the other central banks around the world. If we break down below the 1.11 handle, then it’s likely we go down to the 1.10 level underneath. That is an area that will attract a lot of attention due to the round figure attitude of it, but I think that if we can break above the 1.12 level, then it shows that the Euro could get a bit of a rally from here, perhaps taking advantage of this hard floor right around the 61.8% Fibonacci retracement level.
Needless to say, this is going to be a choppy market but that’s nothing new for this pair as it is one of the choppiest in the Forex world. Recently, we have seen a lot of support at the 1.11 handle, so I think that a bounce towards the 1.13 level, possibly the 1.14 level isn’t necessarily a huge stretch of the imagination.
