The Euro initially tried to rally during the trading session on Thursday but gave back gains near the 1.11 handle. This is an area that had been important previously, so it is not a huge surprise to see that it offered resistance. Ultimately, this market pulling back does make a bit of sense as we have been in a downtrend for quite some time, and of course, we have seen yields in America start to rise during the trading session yet again. With this being the case, I think the interest rate differential will continue to be a major issue.
Earlier in the day, the ECB statement been read by Christine Lagarde suggested that perhaps they would start to taper off a bit, but at the end of the day, it still sounded rather accommodative. At one point, futures traders had bet on a 75 bps rate hike within the next year from the ECB, but even if that were true, it is still much lower than what is expected out of the Federal Reserve. This by its very nature suggests that the US dollar should be favored.
Furthermore, you need to keep in mind that the shooting war in Ukraine is right on the doorsteps of the European Union so that in and of itself will have an effect. After that, inflation in the economy such as Germany will continue to weigh upon the Euro as well. Furthermore, a flight to safety favors the US dollar overall, so at the end of the day, we got a situation where the pair is doing exactly what you would expect it to do over the longer term, which is to continue to grind lower.
On the upside, if we do turn around a break above the 1.11 level, then we have to worry about the 1.12 level, which is a significant barrier that has caused a multitude of problems. In general, this is a market that has been in a downtrend for quite some time and looks as if it is got further to go I have no interest in trying to get long of this market, at least not in this current environment. Yes, I recognize that we could see a bit of a bounce, but that will only end up being a nice opportunity to start shorting yet again.
