- The euro dropped early on Wednesday to test the 200-Day EMA, but it recovered and began to show resilience once more.
- This is a market that shows just how difficult defining a trend at this point in time, and I think that the market is a great representation of just how lost the financial markets are at the moment.
As you can see, during Wednesday's trading session, we swiftly plummeted to the 200-day EMA. But given that New York is coming online, it appears that we will at least make an effort to protect this significant landmark. Additionally, we've already seen some pretty big resistance around the 1.08 level, so some degree of market memory certainly plays a role here as well. We are clearly in a highly turbulent market when I zoom down to the one-hour chart. I simply don't see how things will change very soon, especially in light of the fact that this year both central banks are probably going to reduce.
The Fed and the ECB
The Federal Reserve is expected to cut at least three times, while the European Central Bank is currently more of a question than a given. However, with Germany likely to enter a recession, the real questions are when and how much they will cut. For the most part of this year, the euro should remain somewhat range-bound as long as that is the case. My floor is 1.07 below, and my ceiling is 1.10 above.
But if we were to breach the 1.07 level, it might open up to the 1.05 level and effectively resemble 2023 all over again. It shouldn't come as a great surprise because this duo does have a history of being extremely erratic over the long run. Having said that, you will need to monitor interest rate differences, so keep an eye on the US and German bond markets to see how interest rates are changing. The market will shift more in favor of one of those currencies the more they differ.
Another thing to consider is that the US dollar is seen as a bit of a safety currency, so the greenback is likely to benefit even in the event that geopolitics spirals out of hand. To be honest, there are a lot of things that may send the markets into a tailspin.
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