The euro plunged on Friday to show signs of weakness yet again but did recover a bit towards the end of the day. This makes a certain amount of sense as traders will have booked profits heading into the weekend. There is so much in the way of concern out there that could come into the picture. After all, the euro has to deal with all magnitude of major issues.
The first problem of course is the war in Ukraine, which is right next door. By having an open conflict on the borders, there is always going to be a certain amount of concern about shooting crossing one of the borders. That is less of an issue now, but at this point is likely that it will still add a little bit of concern.
It is also worth noting that the interest rate differential continues to favor the United States, and that has a major influence on what happens here. As long as the interest rate differential continues to favor the US dollar, it will continue to pressure this market. That being said, the market did recover a bit and it ended up forming a bit of a hammer. If we can break above the top of the hammer, that could send this market higher, perhaps reaching the top of the two inverted hammers from a previous couple of sessions. Breaking above that level then allows more of a recovery, something that I think still would invite a lot of selling pressure above.
If we do break down below the 1.08 level, then it is likely that the market could go as low as the 1.06 level, but it will take some time to get down there. After all, there is a lot of noise underneath this area so I would expect it to be very choppy. In general, this is a market that will continue to be noisy, so I think that you have to look at rallies as a potential pick of “cheap US dollars.” On the upside, the 50-day EMA sits at the 1.11 handle, and I believe that would be a huge “ceiling in the market.” Ultimately, it is not until we break above the 1.12 level that the trend technically changes, and then it could change the way this market behaves.
