- The EUR/USD has fallen a bit during the trading session on Thursday, as it looks like we are going to threaten the 1.05 level.
- At this point, we should see a significant amount of support, but if we do not see that come into the picture, it’s likely that we continue to plunge.
- Keep in mind that the ADP number came out much hotter than anticipated during the Thursday session, it has people worried about the Federal Reserve and its next course of action.
Quite frankly, the Federal Reserve is done everything he can to tell people that it is going to remain tight for longer than the general public anticipates. In fact, it was stated explicitly during the FOMC Meeting Minutes on Wednesday that none of the FOMC board members believe that there is going to be a rate cut in 2023, despite the fact that a lot of people on Wall Street believes that there is going to be. Either way, if there was a rate cut, it would be due to a recession which of course favors the US dollar anyway, because it’s considered to be a safe asset.
Waiting for the ECB’s reaction
While European inflation is rather hot, the reality is that the economy is slowing down enough that the central bank will have to do something, and therefore the European Central Bank could blink much quicker than the Federal Reserve will. The 50-Day EMA is currently walking right along with the 200-Day EMA indicator, getting ready to cross. While it is considered to be a bullish sign, if we break down below those 2 moving averages, then I think the floodgates open, and the Euro could drop down to the parity level again.
If we turn around take out the 1.08 level, that would be a very bullish sign, opening up the possibility of a move back to the 1.10 level. I don’t see that happening, and quite frankly it would take a Herculean effort to make it so. The jobs number could be the catalyst to rally, but at this point I think it’s becoming much more clear that the US dollar is still needed and desired, and the recent pullback that we have seen in the value of the greenback may be offering enticing opportunities for those who believe in its longer-term rally.
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