- The EUR/USD initially tried to rally during the session, showing signs of strength. However, the parity level has offered resistance yet again, just as the 50-Day EMA as.
- Because of this, I think the market is more likely than not going to continue to favor the downside, especially as clarity is something that we just don’t have at the moment.
- Keep in mind that the Federal Reserve just raised interest rates during the day on Wednesday, to a rate of 4%. You could drive a truck through the interest rate spread, and therefore I think you continue to see the US dollar show signs of strength.
Furthermore, if we break down below the bottom of the last couple of days, it clears a minor potential support level, and then opens up the possibility of the Euro dropping down to 0.96 next. After that, then you have the 0.95 level which offered support previously. The market is dealing with a lot of noise in the same general vicinity, including the downtrend line, the parity level, and the 50-Day EMA. Because of this, does make a certain amount of sense that there was technical resistance, but when the Federal Reserve statement came out initially, the market went wild as people started to read the slight change in language as a sign that the Federal Reserve is going to change its trajectory.
Euro Likely to Keep Losing Ground
During the question and answers part of the press conference, Federal Reserve Chairman Jerome Powell stated that it was far too early to think about pausing interest rate hikes, and it would more likely than not require higher interest rates for longer than they anticipated.
This does not mean that they are going to be raising rates drastically, but it does set up a bit of the carry trade for currency traders yet again, only this time it’ll be buying the US dollar instead of selling it like it had been for years. Whether or not that’s going to continue to be the case remains to be seen, but it’s clear that the downtrend in this pair is firmly ensconced, and quite frankly I’d be hard-pressed to come up with any real reason to want to buy the Euro anyway. The Euro, and many other currencies around the world need the Federal Reserve to save it. It certainly can’t stand on its own merits.
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