It’s difficult to imagine a scenario where the Federal Reserve is going to change its monetary policy anytime soon, so there’s no reason to think that the US dollar is going to strengthen.
- The EUR/USD has gone back and forth during the trading session on Friday as we continue to hang around the parity level.
- The parity level course has a lot of psychology attached to it, and therefore it’s not a huge surprise to see that we are hanging around this area.
- The 50-Day EMA currently sits below the 1.02 level and is dropping from there.
- The 50-Day EMA has acted very much like a downtrend line, and therefore you need to pay close attention to it.
We will get the occasional balance at this point, but signs of exhaustion will get sold into. If we break down below the lows that we made in the last couple of weeks, it’s likely that the Euro could drop down to the 0.98 level. Underneath the 0.98 level, it’s likely that we could go down to the 0.96 level after that. Either way, I think what we have is a very choppy situation ahead of us, and therefore I think you need to look at this as a “fade the rally” type of situation.
Parity Level Likely to Continue Being Significant
If we were to break above the 50-Day EMA, it’s possible that we could go looking to the 1.04 level, which is even more resistant. It’s difficult to imagine a scenario where the Federal Reserve is going to change its monetary policy anytime soon, so there’s no reason to think that the US dollar is going to strengthen. I do believe that the Federal Reserve is going to continue to be very hawkish, and a lot of traders may be disappointed next week during the interest rate decision and subsequent press conference. At this point, the Federal Reserve is doing everything it can to fight inflation, which of course in the United States. In fact, we have just received a CPI number that was stronger than anticipated, which of course is very bad news for the Federal Reserve.
It’s worth noting that the last 3 days have been very tight and that it seems to look at the parity level as a bit of a magnet for price. The parity level continues to be something that will cause headlines, and of course, the narrative-driven markets are going to continue to pay attention to the same stuff they have over the last couple of weeks.