The euro went back and forth on Friday to show a bit of hesitation down at the 1.1440 level. The market plunged quite drastically over the last couple of days, which suggests that we are still in quite a bit of trouble when it comes to the strength of the euro. After all, the US dollar has been helped by stronger inflationary numbers coming out of the United States, and the 10-year note selling off in order to offer more yield.
On the other side of the equation, the European Central Bank is likely to stay very loose with its monetary policy as it continues to determine whether or not it can taper bond purchases. At this point, it is very likely that the market will continue to favor the greenback and even though we have stabilized during the day on Friday, I think that at this point any rally that we see will more than likely be sold into. The market breaking below the 1.15 level is a psychological blow to the value of the euro, and the fact that some other currencies bounced against the US dollar while the euro did very little during the day also suggests just how much trouble this particular currency is in.
Based upon the projected move from my analysis, I anticipate that the euro may eventually get down to the 1.1250 level underneath. That is an area that has been important in the past, so do not be surprised at all to see it cause a little bit of a bounce. Furthermore, that does not necessarily mean that we will get down there right away, and it will take some time to make that happen.
As far as buying the euro is concerned, I do not see any real scenario in which I would do it right now, but if we were to break above the 1.16 level and the 50-day EMA which sits just above it, then I might be able to reassess the entire situation. Right now, I look at short-term charts in order to sell signs of exhaustion and pick up “cheap dollars” in what is a very strong market for the greenback over the last week or so. With this, I believe that the euro might be in a bit of trouble again.
