The Euro has rallied ever so slightly during the trading session on Tuesday to test the 1.08 level, an area that previously had been so supportive. The fact that we bounced to that area and found a bit of selling pressure is not a huge surprise, considering that we are in a major downtrend, and of course, this is an area that has been important multiple times.
The 1.08 level is significant, but it is also significant to understand that there is a lot of noise between there and the 1.06 level, which is worth noting as even if we were to break down through all of that, it more than likely will be choppy and noisy, so it will be more of a grind lower than anything else. Because of this, you will have to be very patient if you are shorting this market in this general vicinity. Furthermore, it is worth noting that the Thursday candlestick has been very negative, so if we were to break down through the Thursday candlestick from last week, that could be a signal to get short.
Signs of exhaustion should continue to be looked at as an opportunity to short the market and pick up “cheap US dollars.” After all, the ECB is nowhere near tightening monetary policy, while the Federal Reserve is almost certainly going to be extraordinarily tight going forward. Inflation and the bond market are both going to force the Fed to become very hawkish, and as long as that is going to be the case, it the very likely that we will see this pair favor falling.
In fact, it is not until we break above the 1.12 level that I would consider buying the Euro, but that would take a significant amount of effort, perhaps more effort than we are likely to see. Quite frankly, the only thing that I can imagine is that the world can throw at this market in order to make a turnaround in its overall trend if the Federal Reserve decides that it is going to completely abandon the overall hawkish attitude, which is something that looks very unlikely considering that the United States is seeing inflation that it has not experienced in over four decades. In that scenario, it is difficult to imagine that the Federal Reserve will do everything it can to fight it.
