- The EUR/USD has pulled back during the trading session on Thursday as the 200-Day EMA has come back into the picture, with the 1.0350 level is an area that a lot of people are paying attention to as well.
- The market is more likely than lot going to be a situation where we debate whether or not the euro can keep up the type of momentum it has seen.
- It is clear to me that we are overbought at this point, so at the very least I suspect that we are going to have to see sideways trading action to work off the froth, or pullback in order to find value for those who are wanting to buy the euro.
The 1.0350 area is basically where the support had been previously, so it does make a lot of sense that the area could offer a bit of “market memory”, and therefore resistance. I think at this point, the pullback is more likely than not, but I also must question whether or not the ECB is going to be able to raise rates as quickly as everybody thought. In fact, there was a leak across the wires today that suggested that the ECB was only going to be able to raise interest rates by 50 basis points at the next meeting, instead of the anticipated 75. If that is in fact the case, then the euro won’t be as appealing as the US dollar, especially if the Federal Reserve continues to be aggressive with this tightening policy.
Dollar Likely to Strengthen
Beyond all that, we also must worry about whether or not there is going to be a slowdown globally, and if that is in fact going to be the case, then a lot of people run to the US dollar for safety. Looking at the chart, it does make quite a bit of sense that we would see a pullback if for no other reason than the fact that we had gotten ahead of ourselves. However, if we were to break above the 1.05 level, that could bring in a flood of fresh buying, opening a move to the 1.08 level. In that scenario, you could have a significant recovery by the greenback as well. If there are concerns out there, there is a chance for the US dollar to continue to strengthen over time.
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