The Euro jumped on Monday in a “dead cat bounce” from what I see. At this point, being a bit patient will more likely than not pay off.
EUR/USD
The Euro rallied quite nicely during the trading session on Monday, slicing through to the 1.15 level characterized probably best by thinking of it as a corrective bounce. This has been a market that's sold off quite drastically recently and I think we are looking at a market that has dropped over 5% in just simply needed to correct a bit.
The Euro will continue to see heavy downward pressure, and I do think that there is a significant amount of resistance just below the 1.16 level not only due to the structural action on the chart, but the fact that the 200-day EMA is sitting there. It has broken decisively below its 52-week moving average, a classic signal that the easy uptrend of 2025 has ended and a new regime of dollar dominance could be beginning.
A New Regime of Dollar Dominance
The US Dollar of course is a safe haven currency, and the US Dollar is currently preferred during the war hedging situation as the United States is energy independent. Markets are now pricing in a 34% chance of zero rate cuts in 2026. That means that we could be looking at a Federal Reserve that is holding but hawkish at the same time.
The dollar could very well see another leg higher against most other currencies. The Euro suffers at the hands of energy costs, which of course is a net energy importer.
The ECB is expected to hold rates at 2% this Thursday and while they are worried about inflation, projected to rise as high as 2.4% due to energy, they cannot hike rates into a cooling economy without risking a massive recession. I am looking at this as a bit of a dead cat bounce and somewhere near the 200-day EMA, I’m more than comfortable shorting this market at the first sign of exhaustion.