The euro dropped lower on Thursday, as we are likely to continue to see the market price in a Fed rate hike.
EUR/USD
The euro tried to rally a bit during the trading session on Thursday but has given back gains despite the fact that interest rates in the United States are dropping. It is worth noting that the interest rate differential favors the United States dollar still, and I think at this point in time, we are very likely to go looking to the 1.14 level.
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The 1.14 level is the bottom of a larger consolidation area that a lot of people will be watching because if we were to break down below there, it's likely that the market really could start to plunge, maybe towards the 1.13 level, maybe even 1.12. In the short term, I think we have quite a bit of volatility just waiting to happen.
If we do rally from here, the 200-day EMA, which currently sits at the 1.16 level, will be a bit of a barrier, and that I think makes a certain amount of sense as a target. If we were to break down below the 1.14 level, I think you would see a rush into the US dollar overall, and that would have huge aftereffects in multiple downward pressures.
Technical Outlook and Federal Reserve Influence
With this being the case, I think EUR/USD is a market that probably continues to see a lot of US dollar favoritism, and really, at this point, I think it is worth noting that the most recent attempt at a recovery by the euro failed pretty drastically. The Federal Reserve is likely to raise rates at least once this year, and that is turning the whole thing around.
All things being equal, this is a market that I think a lot of people are looking at through the prism of a US dollar-centric forex market yet again. The euro falling apart is the biggest currency out there, which leads to other currencies following suit.
While I don't think that the euro crumbles completely, what this could kick off is US dollar strength against some of the weaker currencies. I do not wish to buy the euro; I recognize that short-term rallies are to be sold into, but if we can break above the 200-day EMA, then perhaps we could see a shift in dynamics.
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