- The EUR/USD has rallied a bit during the trading session on Monday but continues to struggle above the 1.06 level in what can only be described as somewhat lackluster trading.
- At this point in time, the market continues to focus more on the holidays than anything else from what I can see, so I think we’ve got a situation where the market could continue to struggle, but I’m not necessarily looking for big moves at this point.
- I do believe that the Euro loses ground against the US dollar over the longer term, but I also recognize that it does not necessarily mean that it must be today.
There is the central bank differential and the fact that the ECB is likely to continue to rate hike through the spring, but the Federal Reserve is going to remain higher for longer and at the end of the day that probably wins out. Furthermore, you must consider the fact that the market has the keep in mind that there is a lot of recessionary pressure out there, then generally favors the US dollar overall. In this environment, I think that the Euro will suffer, not only due to a strengthening US dollar but the fact because the European Union has a mass on its hands. Not only does it have inflation, but it’s also got very serious energy concerns going into the winter.
Market Ignores the Federal Reserve
The 200-Day EMA, pictured in blue on the chart, could be your support level underneath that we will be paying attention to, especially as the 50-Day EMA continues to race toward it. It’s been quite amazing, but traders out there still want to push the Federal Reserve’s art as they can, not recognizing that Jerome Powell has already decided that rates are going to be higher and of course the rate of inflation that the Federal Reserve is willing to tolerate remains at just 2%. Sooner or later, the market will understand this, but right now it seems like they are hell-bent on fighting the Federal Reserve as hard as they can.
If we do break down below the moving averages underneath, that opens a move down to the 1.05 level. Alternatively, if we were to break above the 1.08 level on a daily close, then it’s likely that the Euro could go looking to reach the 1.10 level above.
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