The euro rallied rather significantly on Wednesday to reach towards the 1.11 handle. That is an area that has been important in the past, and the fact that we slammed directly into it does make a certain amount of sense on recovery. After all, the market had been oversold and a massive move like this was probably necessary.
Ultimately, it is only a matter of time before we see some type of exhaustion that we can start fading again because there is no reason for the euro to strengthen over the longer term. After all, the interest rate differential between the two continues to favor the greenback, and of course, we have a lot of concerns when it comes to the European Union from an economic standpoint. The market continues to see a lot of noisy behavior, and of course fears about the war in Ukraine. If it were to spill over into the European Union, it would obviously be disastrous.
Regardless, this is a market that has plenty of concerns when it comes to the European Union from an inflationary standpoint, interest rate differential, and of course any knock-on effect from the Ukrainian battles. Ultimately, the euro had been oversold though, so it does make sense that we had to have a bit of a bounce. Whether or not this bounce sticks is a completely different situation, and this is a market that I think continues to be very noisy and now that we are entering the area that had previously been supportive, I am going to start looking for signs of exhaustion that I can jump all over. Longer term, I think this market continues to see plenty of sellers and I think it is a situation in which you need to be cautious and take advantage of it.
The size of the candlestick is rather impressive, so it is more than likely only a matter of time before we run out of this upward momentum. I will simply be waiting to see a long wick to the upside in order to place my next position. The US dollar has been overdone, so this move was probably necessary. We may have another day or two before we fade.