The euro initially rallied on Wednesday but has since given those gains back as we try to sort out the next move.
EUR/USD
The euro initially rallied during the trading session on Wednesday, but it continues to face a lot of pressures for a multitude of reasons. Not to say the least that there is a lot of concern out there as there is a hot war in the Middle East now but really at this point in time you also have to pay attention to the fact that traders believe that the Federal Reserve may have to wait for a while to determine when to cut rates.
And if that's going to be the case then I think you've got a situation where a lot of people will be watching this through the eyes of a risk-off type of situation. Furthermore, interest rates in America climbed during the day did not help.
Federal Reserve and ECB Policies
So ultimately it looks like traders are banking on the Federal Reserve being a little sluggish when it comes to cutting rates. On the other hand, the ECB is ready to stand pat although there is a very real world in which if we continue to see energy shock concerns that could have people thinking that maybe the Europeans will have to cut rates to stimulate growth.
We'll have to wait and see whether or not that happens, but this is a market that's been falling for a while. When you zoom out you can see that the 1.15 level is crucial and if we were to break down below there then I think the euro starts to fall apart. And then at that point I would anticipate a move to the 1.14 level, possibly followed by 1.11.
It does look like there's a lot of fear out there and it's probably worth noting that while the US stock markets are a bit sluggish it is holding up. We have not seen the type of volatility in the United States that we have seen in places like Germany, France, even places like India. So, with that being said we may see a return to the dollar, and it certainly looks like we're going to press the issue here.
If we were to turn around and break above the 1.1675 level that could open up a move to the 50-day EMA, but I think that would be temporary.
Potential signal: I am a seller below 1.15 on a daily close. I would aim for 1.11 and have a stop at 1.16