- The EUR/USD has fallen again during the trading session on Wednesday, after forming an inverted hammer on Tuesday.
- The Producer Price Index in the United States came out at 0.4% month over month, as opposed to the expected 0.2%.
- This has people worried about inflation yet again, and perhaps more importantly and more to the point, the Federal Reserve tightening its monetary policy.
On the other side of the Atlantic, you have the European Union which is going to be worrying about power this year. A winter with a lack of power supply is not exactly conducive to a strong environment, so it makes quite a bit of sense to me that the Euro will continue to soften. After all, the European Central Bank has very little he can do to fight the drag on the economy due to energy. Ultimately, this is a market that’s been in a huge downtrend for a while, and I think that will continue to be the case. With that, I like the idea of fading any rally that we see, especially as there are a couple of technical indicators above that could come into the picture.
Markets Likely to Favor the US Dollar
The 50-Day EMA sits just below the parity level, right along with a trendline that has been followed quite closely over the last several months. At this point, I think this market continues to struggle overall, and it is worth noting that the Euro will continue to suffer at the hands of the interest rate differential, especially as the Federal Reserve looks likely to continue seeing the need to fight inflation via money tightening. At this point in the cycle, we are still very likely to see a lot of noisy behavior, that typically means people will go looking to the US dollar.
It’s not until we break above the parity level that I would consider going long in this pair, and even then, I would need to see a major shift in the fundamentals to make that trade doable. At this point, we are probably talking about the possibility of the Federal Reserve shifting its monetary policy, because there’s almost no way that the ECB can come in and tighten monetary policy aggressively enough to change everything. With this, I believe that you continue to look for “cheap US dollars” that you can pick up every time we rally.
Ready to trade our Forex technical analysis? Here are the best Forex brokers to choose from.