Euro rallied Tuesday, as rates in the United States have fallen. At this point, this is a market that is now testing the crucial 1.18 level again.
EUR/USD
Euro rallied significantly during the trading session on Tuesday to reach the 1.18 level. This is an area that had been important previously as we had broken down from there to go down to the 1.14 level. All things being equal, this is a market that I think continues to see a lot of volatility based on the idea of interest rates in America falling and perhaps more importantly, the idea that the peace deal in the Middle East might actually be a real thing.
If that's the case, that releases a lot of pressure on Europe which is going to have issues with energy. Higher energy cost will cause major problems for the European Union and the big companies that drive the engine of the European Union, the industrial complex in places like Germany.
A Focus on Geopolitical and Interest Rate Shifts
Ultimately, this is a market that is a little bit overextended, but we have seen a pretty significant drop in the 10-year yield in America as a result of optimism due to the renewed headlines about possible talks between the United States and the Iranians.
Ultimately, it's not until we break above the 1.1850 level that the market can truly take off to the upside, perhaps opening up a move to the 1.20 level, but I think this is a scenario where the US dollar is going to be driving where we are going more than anything else. So, if you see this pair rise, you probably see the dollar drop against most things. Any negative headlines coming out of the US and Iranian talk situation probably sends the Euro.