- The EUR/USD has finally broken above the 1.08 level during the trading session on Thursday, as the CPI number in the United States came out much as expected.
- Furthermore, we have Federal Reserve members suggesting that perhaps they are thinking along the lines of 25 basis point rate hikes in February, so this had everybody doing the happy dance.
- At this point, it looks like the Euro is on its way to 1.10, and short-term pullbacks will more likely than not attract a certain amount of attention.
In this environment, pay close attention to the 1.07 level, which should now offer a bit of a floor, and it’s probably worth noting that the Euro has been in an uptrend for a while, but now we have another fundamental reason to get long, at least as far as traders are concerned. With that being the case, I think you get a situation where the market will probably look to much higher Euro rates, and that does make a certain amount of sense considering so many pundits out there have been calling for a stronger Euro, although I don’t know how long that can last. In the meantime, though, it’s obvious that it is going higher, and there’s no point in fighting it anymore.
Volatility Ahead
The 1.10 level is an area that I would be paying close attention to, mainly because there’s a lot of structural resistance there, and we had seen previous interest in it because it is a large, round, psychologically significant number. If that number were to be broken above, that probably since the Euro off to the races, and much, much higher.
I suspect that we are going to continue to see a lot of volatility, but quite frankly it’s difficult to bet against the euro right now, it’s been such a strong trend to the upside, and everybody is convinced that the Federal Reserve will finally buckle. If they do, that will send the last of the sellers out of the market and send the Euro much higher as they finally acquiesced to traders' demands, which has been their modus operandi for the last 14 years, so you cannot blame traders are thinking that they will give up and start loosening monetary policy yet again when push comes to shove.
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