- The EUR/USD currency pair rallied a bit Monday but then turned around to show signs of weakness again.
- We have been in consolidation for a while, with the 1.03 level being resistance and the 1.01 level underneath being supportive.
- This has been the case for a couple of weeks, so it’s not a huge surprise to see that we stayed within this area.
Furthermore, it makes quite a bit of sense that we are still in that area due to the fact that the CPI numbers come out on Wednesday, and people will be paying close attention to how that turns out in order to get an idea as to what the Federal Reserve is going to do next. It’s a bit odd, due to the fact that the traders out there seem to think that the Federal Reserve is going to become a bit looser with its monetary policy going forward, even though the Federal Reserve has explicitly said that they are going to continue to fight inflation as its number one job.
50-Day EMA Dropping
The 50-day EMA sits below the 1.04 level and is dropping lower. That being said, even if we break above the 1.03 level, both the 1.04 level and the 50 Day EMA look likely to cause a significant amount of resistance. The 1.04 level has been previous support, so there is probably going to be quite a bit of “market memory” in that area on the way back up.
On the other hand, if we break down below the 1.01 level, it’s possible that we go down to the parity level. The parity level of course is a major psychological level that people will be paying close attention to.
If we were to break down below the parity level, it’s likely that the euro will drop down to the 0.98 level rather quickly. The fact that the Germans are not going to have enough gas over the next several months, and we are already starting to see shutdowns of major factories being a real threat, means it is probably only a matter of time before the European economy tanks again. In that scenario, it’s likely that we could go much lower, as we should continue to see plenty of downward pressure. I’m either going to fade short-term rallies, or sell a breakdown.
Ready to trade our daily Forex analysis? We’ve made a list of the best brokers to trade Forex worth using.