Keep an eye on volatility and risk appetite, because it will give you an idea as to whether or not we are going to sell off for the day or turn around and try a counter-rally.
The euro fell a bit on Wednesday as we continue to see more of a “risk-off” type of move in the market. The euro did get a bit of a reprieve during the previous session, but every time we rally it is likely that we will continue to see plenty of sellers running back into the US dollar. The US dollar continues to attract a lot of inflows due to the interest rate differential, and of course, the fact that the Federal Reserve has reiterated its willingness to “go beyond the neutral rate” to fight inflation.
On the other side of the Atlantic Ocean, you have the European Central Bank which has to fight a slowing economy, and is likely to remain much looser than the Federal Reserve. The market has been negative for quite some time, and I just do not see that changing anytime soon. Any time we rally, I will be looking to short the euro on short time frames. The 1.06 level above offers quite a bit of resistance as well, so I think this is a market that cannot be bought anytime soon.
If we were to break above the 1.06 level, then I think the market would have to deal with the 50-day EMA which is currently breaking down below the 1.08 level. The 1.08 level is previous support which should now be resistance based on the “market memory.” The market breaking above there is going to take a huge Herculean effort, something that I do not see happening anytime soon. In fact, based upon the bearish flag that we recently formed, you can extrapolate the move down to the 1.00 level, perhaps even slightly lower.
Keep an eye on volatility and risk appetite, because it will give you an idea as to whether or not we are going to sell off for the day or turn around and try a counter-rally. While the candlestick on Wednesday was not necessarily huge, it reiterates the overall attitude, so it is likely that we would see plenty of people willing to jump on board. If the Federal Reserve changes its tune, we may see this market reverse, but we are so far from that right now as inflation is raging, that I just do not see it happening.