The EUR/USD has been pummeled for the last several months, and the month of August has seen a run down to the parity level again. This is an area that has a lot of psychology attached to it, and therefore it’s possible that we could see a little bit of noise. I think this is especially true at the very beginning of the month, but at the end of the day, this is a market that is in serious trouble, and should be.
The European Union will continue to suffer as long as the sanctions on Russia continue. This is because they do not have enough energy, and this winter is going to be an absolute unmitigated disaster for the EU if something does not change. Ironically, one of the best “signals” for the Euro will be the day that the Europeans finally acquiesced to Vladimir Putin, who has them in checkmate.
This is not a political question, it’s a mathematical one. The ECB has no real way to fight inflation because the economy is going to be so fragile that raising rates will possibly throw the EU into a depression. Keep in mind that the bond market is also flashing negative signals as well, as the ECB now buys almost all Italian debt. The Euro is in a lot of trouble, and I think that continues for quite some time.
Do not be surprised that all of the Euro rallies a bit to kick off the month, but I do see this market break above the 1.05 level to take any rally seriously. 1.04 has been almost impossible to break above recently, so that in and of itself would be a major headline-grabbing action. I would be surprised if you even get that high. This pair will continue to be a “fade the rallies” type of situation, perhaps even through the end of the year. The market will more likely than not continue to see downward pressure either way, so even if we don’t get a rally, you have to be short of the Euro in general. It is more likely than not going to target the 0.98 level, possibly even 0.95 by the end of the month. It’s going to be noisy, but I have almost no scenario, barring the EU and Putin coming to terms, that I would be a buyer of the Euro.
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