EUR/USD
The Euro broke below the 1.05 level during the day on Thursday, a very significant breakdown. The market looks as if it is ready to continue going lower now, and at this point I feel that any short-term bounces simply going to offer value in the US dollar going forward. This makes perfect sense; the Federal Reserve looks to continue to raise interest rates while the ECB has just announced that they were going to continue quantitative easing by at least 9 months. It makes sense that we are going to fall from here and then reach down to the parity level. Short-term rallies continue to offer selling opportunities.
GBP/USD
The GBP/USD pair broke down below the day on Thursday, slicing through the uptrend line and the 1.25 level below there. Because of this, looks as if the British pound is going to selloff, and at this point I feel that any short-term rallies can offer a selling opportunity. After all, this is a market that should continue to see quite a bit of favoritism towards the US dollar as the Federal Reserve has suggested that there are more interest rate hikes coming. In the meantime, the Bank of England is nowhere near trying to raise interest rates, and that will continue to weigh upon the British pound, at least against the US dollar.
I don’t expect any type of meltdown, but I do think that we are going to grind our way down to the 1.20 level over the next several weeks. It might be kind of quiet between now and New Year’s, as the volatility tends to shrink during the holidays, but given enough time it’s very feasible to think that the 1.20 level will not only be tested, but it could be broken with the right news flow.
