- The EUR/USD currency pair fell a bit on Friday as we continue to see a lot of concern around the world.
- Keep in mind that we’ve been in a downtrend for quite some time, and it does make sense that we will see the euro suffer as a result, based upon simple momentum.
- Furthermore, you need to keep an eye on the fact that the interest rates in America continue to be much higher than in the European Union, which makes sense considering just how much negativity there is surrounding the European Union.
Fed Likely to Strengthen USD
While inflation is a bit of a problem throughout parts of the EU, the reality is that the Federal Reserve is going to remain very tight and therefore it’s likely that we will continue to see the US dollar strengthen. Ultimately, this is a situation that should continue going forward, especially as we see so much in the way of concern about energy in the European Union going forward. Quite frankly, the market is likely to see this as a “fade the rally” type of situation. It will continue to eventually try to get down to the parity level again, and I think it’s probably only a matter of time before we break below.
The 50-day EMA is a significant resistance barrier, but more important than that is going to be the 1.04 level. Breaking above that level would be a bullish sign, but it’s not until we break above the 1.06 level that I would consider this market broken out to the upside for a bigger move. While I cannot necessarily envision that happening, it’s a matter of following price at that point. If we do break above there, then the market is likely to continue to see the euro bounce quite higher.
The markets are trying to figure out whether or not the Federal Reserve is going to remain tight, which they very well should. However, if inflation starts to drop even further, then it’s possible that we could see the euro be a short-term beneficiary. If we break down below the parity level, it’s likely that the market could go down to the 0.98 level, perhaps even the 0.96 area. Ultimately, this is a market that continues to be choppy, but favors the downside.
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