The Euro has fallen again during the trading session on Monday to reach near the 1.04 level. The area has previously been supported and is an area where we have seen a significant bounce from there. I think at this point in time it’s only a matter of finding more sellers so that we can break down below the recent low. If and when we do, it’s likely that we go looking to reach the 1.03 level, and then perhaps the 1.00 level over the longer term.
Short-term rallies will continue to offer selling opportunities, and therefore I will be looking for signs of exhaustion to jump upon. If and when that happens, I think it gives us plenty of opportunities to take advantage of “cheap US dollars.” The market has been in a downtrend for quite some time, and I don’t see anything changing as the 10-year note has seen yields rise above the 3.35% level. This is a huge level, and it suggests that the US dollar will continue to find plenty of buyers, and therefore I think it’s a situation where we can have plenty of opportunities to take advantage of a one-way trade.
If we were to turn around and take out the upside, it would have to go as high as 1.09 in order to show a complete reversal of attitude. The only way that I see this happening is if for some reason the Federal Reserve steps away from its platform of fighting inflation. I just have no interest in seeing this market as a buying opportunity, and I don’t think that the Federal Reserve has any opportunity to change its stance, because inflation is much hotter than anticipated. In other words, it’s starting to get out of control, and then we have a scenario where we could see a significant meltdown.
That being said, maybe we have a little bit of a bounce ahead of us, but that is going to be a short-term bounce at best, and therefore we should continue to see plenty of negativity going forward. You should keep an eye on the 10-year note as it has a huge negative correlation to what happens in this pair. That will more likely than not continue to be the case, and therefore one chart will lead the other.
