- The EUR/USD has spent the entire week trying to rally, but it continues to struggle above the 1.06 level, an area that seemingly is going to continue being important.
- Now that we are running out of liquidity, it’s very likely that the market simply will not have the “juice” to break above there.
- Keep in mind that the US dollar is also favored when you have a major recessionary situation around the world, and that certainly seems to be what we have.
As traders run toward the US dollar for safety, they will certainly dump the Euro, which is going to be coming with its own issues, to begin with. While the ECB is almost certainly going to continue raising rates, the reality is that they are raising rates with a very negative outlook for the overall economy. As the European economy falters, it makes sense that the Euro would continue to struggle. After all, it looks as if the currency markets are starting to focus a little less on interest rates, and quite a bit more on the economic outlook. In that scenario, even though the United States is almost certainly going to enter a recession next year, it won’t be as bad as what the Europeans are facing. This will be especially true if the energy situation doesn’t get any better.
Choppiness Ahead
On the other hand, if we were to rally again from here, I’ll be looking to fade signs of exhaustion as we continue to get it above the 1.06 level. It’s not until we break above the 1.08 level that I would consider that the trend could continue unabated, and at that point, I would anticipate that the Euro would reach the 1.10 level above, which is a large, round, psychologically significant figure that a lot of people would be paying attention to. Obviously, it would take a major “risk on” type of move for that to happen, but all things being equal, it’s very unlikely that we get it between now and New Year’s Day.
I suspect that we will continue to see choppy behavior, but the fact that the market simply will not continue to rise from here tells me that we are more likely than not going to see some type of pullback, whether it’s something that is sustainable is a completely different question.
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