The euro rallied just a bit on Monday to show signs of life again, but at this point, it seems that the market is in a strong downtrend. Because of this, the 1.05 level is an area that we need to pay close attention to, as it is a large, round, psychologically significant figure and the area where we had broken down from previously.
When you are in a downtrend like this, it is only a matter of time before you continue to go lower, especially as it takes so much time to break through a trend and change the overall attitude. The area at the 1.05 level is resistance that extends all the way to at least the 1.06 level. Getting through all of that would take a lot of effort, although it is not impossible. With this, I think this is a market that will find plenty of sellers on every rally, especially as the interest rate differential between the two economies is so drastic. As long as that is going to be the case, it does make a significant amount of sense that we would have more demand for the US dollar than the euro.
Furthermore, there is a huge “risk-off” type of attitude around the world, which helps the US dollar strengthen over the longer term. At this point, it continues to be a “fade the rally” type of situation, so even if we did break above the 1.06 level, then I think the 50-day EMA offers resistance, right along with the 1.08 level as well. In fact, we would have to break above the 1.08 level on a daily close to change anything at this point.
Looking at this chart, we have been in a downtrend for quite some time, so I do not see that changing anytime soon and it is likely that we could go to the 1.03 level. If we break the 1.03 level, then it opens up a possibility of moving down to the 1.01 level, based upon the bearish flag that we have just recently broken through. Going to parity is a real threat sometime this year, especially if the global economy continues to slow down the way it has. Ultimately, I do not have any interest in buying.
