The Euro has broken down again during the trading session on Thursday as the situation in Ukraine continues to deteriorate. French President Emmanuel Macron stated during the day that “the worst is yet to come” after talking on the phone to Vladimir Putin, so this of course will have people worried about the European Union itself as the conflict in Ukraine is right at the doorstep.
Furthermore, we have to keep in the back of her mind that Russian energy is a serious issue right now. If the Russians choose to cut off natural gas pipelines to Europe, it will be devastating to the European economy. However, the one thing that keeps that issue somewhat in check is the fact that the Russians are so highly dependent on that money. Because of this, market traders will have to weigh whether or not there is more or less tension. We have definitely seen during the trading session on Thursday that the tension is ratcheting up, and it is working against the value of the Euro.
Furthermore, there is demand for safety, and that almost always means demand for US dollars. Treasury markets have attracted a lot of attention, and that will do more of the same. The interest rate differential between the European Central Bank and the United States will continue to be massive, as the Federal Reserve is almost certainly going to be tightening monetary policy later this month, as traders are trying to front-run the Fed.
Beyond all of that, we have been in a downtrend, to begin with, and quite frankly it takes a lot of effort to turn a currency pair around. With this being said, I still like the idea of fading rallies that occur on short-term charts, but it must be said that we did not even bother trying to make a two-day bounce after piercing a major support level. This is a very bad look overall for the Euro, so I think is probably only a matter of time before we can get to the 1.10 level underneath. That is a very large, round, psychologically significant figure, and that will attract a certain amount of headline noise and therefore should see a reaction. I would anticipate that a certain amount of value hunting goes on there, but if we break down below that level, this market will fall apart.
