The euro initially tried to rally on Tuesday but gave back the gains to go looking towards the 1.13 level. This is a market that has fallen out of bed as of late and looks ready to go much lower. The US dollar has been a bit of a wrecking ball against most currencies, with the euro its favorite punching bag. By slicing through the 1.14 level, this is yet the most recent sign of weakness in the euro, as the European Central Bank continues to look very loose with its monetary policy while the Federal Reserve continues to tighten. The tapering of bond purchases in the United States will continue to reflect poorly on other currencies, as it shows such a huge divergence between economies.
Furthermore, we had seen a stronger than anticipated retail sales number coming out the United States on Tuesday, which only exacerbated the entire situation. That being said, the market is likely to continue to see plenty of US dollar strength around the world, and the euro will not be any different. In fact, the euro is being beaten not only due to the fact that the ECB is loose, but Germany and Austria both are looking very likely to lock things down again, and that does not bode very well for the economic outlook of those countries.
As long as this is going to continue to be the case, I just do not see a scenario where this market rallies for any significant turnaround. Yes, we may get the occasional bounce, but that bounce should be sold into at the first signs of exhaustion. The euro was the first collapse, but now I am starting to see the same possibility with other currencies such as the Australian dollar and the New Zealand dollar, but even the British pound is starting to look very vulnerable. At this point, I do not have a scenario in which I would be a buyer of the euro, but if things change, I will be the first to let you know. From a structural standpoint, we would need to clear the 1.16 level, but that looks to be extraordinarily unlikely at this point in time.