The euro fell rather hard on Tuesday as we are now approaching the 1.06 handle. This is an area that is the bottom of a larger consolidation area in the past, so whether or not it holds for support is going to be crucial. Bounces at this point should be selling opportunities, and I believe that the 1.08 level will more or less offer a bit of a short-term ceiling.
The longer-term analysis clearly shows just how bearish the euro is at the moment, and with the European Central Bank not being able to do anything remotely aggressive from a tightening policy perspective, it is difficult to imagine a scenario where the euro suddenly takes off. I think at this point any rally will offer a nice opportunity for traders to pay close attention and start shorting at the first signs of exhaustion. The 50-day EMA is at the 1.0982 level and dropping. If we were to take out the 50-day EMA indicator to the upside, then I might be convinced to start buying. Until then, any rally looks as if it is going to offer “cheap dollars” going forward.
If we break down below the 1.06 handle, then it opens up the move to the 1.05 level, which in and of itself will cause a certain amount of psychological interest. However, keep in mind that the Federal Reserve is looking to tighten its monetary policy quite drastically, and this is part of what we have been seeing reflected in this currency pair. Beyond that, there is also the safety factor when it comes to the US dollar, and it is the first place people run to when there are a lot of concerns about the global economy. We certainly have plenty of those, so I just do not see a scenario where I would be a buyer of the euro anytime soon.
The market has continued to see a lot of volatility, and I think that is going to continue to be the case going into the future. It is a scenario where we simply do not have any real clarity when it comes to a positive outcome, so traders continue to favor the greenback and I think that is going to be the story for the next several weeks as inflation and global economic slowdown continues to be the biggest story.
