The euro initially fell hard on Friday, but found enough buyers underneath the 1.04 level to turn things around. By doing so, it looks as if it is hanging on for dear life in this area, perhaps getting ready to bounce yet again. If it does, I suspect that there will be plenty of sellers above to get involved and start shorting it at the first signs of exhaustion.
On that bounce, I would suggest that the 1.05 level could be an area of trouble, followed by the 1.06 level which should be even more difficult to get above. If we did get above the 1.06 level, then we are looking at an attempt to get to the 1.08 level, an area that should be quite difficult to get beyond. In fact, at that point I would even consider a potential trend change forming.
The Federal Reserve continues to find plenty of reasons to tighten the monetary policy in America, and that will have a major influence on what happens with the US dollar, and by extension with this currency pair. Because of this, I don’t see the trend changing anytime soon, and I believe that the euro also has its own issues. One of the most obvious issues right now with the euro that ECB has to worry about energy supply and inflation at the same time. That’s quite a tricky situation you find yourself in, so I think that it is unlikely that the euro will rally on a sustainable course.
If we were to break significantly lower, the first target below would be the 1.02 level, followed by parity. I do anticipate that we will see parity sometime this summer, but when that happens I do not know. After all, this pair does tend to be very choppy and sluggish most of the time, so you have to simply be set up in the right direction and wait for the market to make the move. Whether or not we get below parity is a completely open question at this point, something that I suspect is a question that we will be asking ourselves near August or September. On the other hand, if the Federal Reserve changes its overall attitude, that could change the overall trend in this currency pair, as well as many others.
