The euro has had a rough month of June, but it is worth noting that we have bounced from the 1.1850 region. That being said, it is also worth noting that we had recently made a little bit of a “double top”, which does suggest that perhaps the 1.23 level is going to be a bit too expensive. With this in mind, I suspect that the month of July is going to be very noisy, but it may also be a decisive one for what happens next in the euro.
The pair is driven not only by the euro, but obviously by the greenback as well. As I write this, it appears that the US dollar is trying to recover a bit after the massive selling over the last couple of months. The US Dollar Index, of which the euro is a majority currency, is starting to show signs of life as the 90 handle has held. By extension, this should be somewhat negative for the euro, but there are multiple different issues at this point in time in order to try to figure out the next directional move.
When you look at the European Union, at least versus the United States, the bond yields in Germany are still extraordinarily low, so that may favor the US dollar. Furthermore, the United States is opening up much quicker than the EU, so that is another reason to think that perhaps the US dollar may get a little bit of a boost. When you look at the last month, there was a massive selloff when it was suggested that the Federal Reserve was “thinking about thinking about tapering.” This was considered to be a misstep by Jerome Powell, but at the end of the day it looks like the markets are starting to price in that the Federal Reserve cannot taper, thus the confusion.
The biggest question going forward is what is going to happen with inflation, and that is still a very open question. It is because of this that the next couple of weeks could be very noisy, but as I look at the chart, it is starting to look like the downside might be the favored move. If we break down below the 1.1850 level, it opens up a move to the 1.17 level, and then by extension the 1.16 level. To the upside, we need to recapture the 1.20 handle to make a run towards the 1.22 level.
