- The EUR/USD currency pair rallied a bit on Wednesday as CPI numbers in the United States came out lower than anticipated.
- This suggests that the rate of inflation could give the Federal Reserve a bit of a break, keeping them from having to be so aggressive with its monetary policy.
- That being said, it’s very unlikely that we will see that happen, due to the fact that the inflation numbers have still come in at about 3 to 3-and-a-half times the Fed’s desired target.
The size of the candlestick was somewhat impressive, but the later we get into the day, the more we pulled back. This suggests to me that there is no real follow-through ready to happen, and I think it is a potential problem just waiting to happen. The 50-Day EMA has offered a little bit of dynamic resistance, so that’s worth paying attention to as well. The 1.04 level above their offers resistance as well, so I do think that it is probably only a matter of time before the overall downtrend continues.
Lack of Energy
When you look at the European Union, it has a whole host of issues, not the least of which is going to be the fact that the energy situation is going to be a very big problem. After all, the Europeans are going to struggle to keep the lights on, and that has a lot to do with economic output. As long as the economy is going to struggle to live up to its full potential, the ECB will have to remain relatively loose with its monetary policy, despite some of the rhetoric that had recently been stated.
The 1.04 level being broken to the upside opens up the possibility of a much bigger move, perhaps to the 1.06 level. It’s not until we break above the 1.06 level that I would consider this trend completely changed. On the downside, I think that the parity level is worth paying close attention to, because it has a lot of psychology attached to it and of course will attract a lot of headline attention. If we were to break down below there on a daily close, then it would open up a trap door selling pressure. That would take a bit of work, but ultimately, I think it’s probably only a matter of time.
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