The euro has fallen against the greenback yet again during the trading session on Wednesday, as the common currency, EUR/USD continues to act as a punching bag. The US yields continue to rise, and of course there are a lot of concerns when it comes to the European Union. The economic situation cannot be thought of as healthy, especially as we have to worry about the possibility of significant energy shortages. As long as that’s going to be the case, it’s difficult to imagine why the currency would suddenly take off and offer a lot of value.
The ECB is more likely than not going to have to cut rates or loosen monetary policy much quicker than the Federal Reserve, so I think that is going to continue to be a factor as well. Furthermore, you need to look at the possibility that the war in Ukraine continues to drag on, thereby causing all kinds of issues for the European economy, not the least of which will be supply chain issues. With the Federal Reserve tightening its monetary policy, it does a number on a lot of currencies out there, and you should always remember that the euro is considered to be the “anti-US dollar.” In other words, this is one of the first places that you will see US dollar strength. As we are now below the 0.98 level again, I think it is probably only a matter of time before we test the lows. Given enough time, I think we probably even break down through it.
- On a break below the 0.95 level, anticipate that the euro will go looking to the $0.90 level. I know this seems extreme, but it was not that long ago that the mere mention of parity seemed extreme.
- I think we’ve got a situation where we will continue to see a lot of extreme negativity out there, and as the global economy slows down, people start demanding US dollars.
- The 50-Day EMA above has offered a bit of a trendline for the downtrend as well, and then of course there is a proper trendline just above it.
- After that, we have parity. If we could break through all of that, I might start to look at the possibility of a recovery rally. Until then, I think it’s all about fading rallies.
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