The US dollar has been like a wrecking ball against almost everything, including the euro. If interest rates continue to rise in America, then it’s likely that the euro will suffer as a result. Ultimately, this is a market that I think will continue to drop over the longer term, especially as the ECB is essentially stuck with a lot of problems right now.
The European economy is going to have to suffer at the hands of a shortage of energy, especially now that even Germany has suggested it is going to go back to using coal. Ultimately, the European Union has a weakened economy, and as a result will probably have to resort to stimulus much quicker than the Americans, which are hell-bent on fighting inflation. Furthermore, bond yields still favor the Americans drastically, and therefore favor the US dollar.
The 1.04 level underneath is a bit of a double bottom, but I think if we break below there, it’s likely that we will take off to the downside, reaching the 1.02 level, and then the parity level. I do think that we will get to the parity level eventually, but it is probably going to take a bit of time, due to the fact that the markets are typically quiet this time of year and we have sold off so drastically already. Because of this, I think we will continue to see rallies sold into, but I also recognize that the market is probably best thought of as a short-term market because the euro tends to be very noisy under the best of circumstances.
The 50-day EMA sits just above the 1.06 level, so if that area gets approached, I would anticipate plenty of sellers coming in to push the market down. The market has been in a downtrend for quite some time, and I think that is something that you need to understand as well, as markets very rarely change trends that easily. I continue to sell on signs of exhaustion and have no interest whatsoever in trying to get long of this market anytime soon. That being said, if we were to take out the 1.08 level, I’d have to stand up and take notice, but right now like that would be a very difficult thing to achieve in this environment.
