The Euro continues to see slight upward pressure within consolidation. The last couple of weeks in the Euro have been very sideways, but when looked at through the prism of the longer-term chart, it seems as if we have some questions to ask of the support area just below. This has been the case for a while, and the price action on Thursday seems to suggest we still aren’t convinced about the rally over the last few days.
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The larger context in the markets right now is a bit of a struggle between the idea that the Federal Reserve may continue to raise rates or whether the latest information starts to change that opinion. After all, both CPI and PPI this month were lower than anticipated in the United States, but at the same time, the conflict in the Middle East continues, and therefore, inflationary concerns still exist. Whether or not the markets start to price that in will be a huge driver of what happens with the US dollar.
Market behavior recently has been very sideways and very indecisive over the last couple of weeks, as we continue to build what looks to be a bit like a bearish flag. That being said, it doesn't seem to have the conviction to break down quite yet, and when looked at through the prism of the last 14 months or so, we are just bouncing along the bottom of a range that starts at basically 1.14 on the bottom and reaches to the 1.1850 level on the top. Both of these areas have seen breaks from them, only to turn the markets back around and into the main consolidation over the last year or so.
Navigating Consolidation and Macro Drivers
The markets will continue to look at this area for clues and, of course, follow the bond markets and interest rates. Interest rates in America are trying to rise slightly in the early part of the Thursday session, but whether or not that continues to be the case remains to be seen. After all, during the Wednesday session, it looked like interest rates were going to take off to the upside, only to turn around and roll over.
There are a lot of different things moving right now because the general consensus is that we are still very much in consolidation, and the Federal Reserve may have to change its monetary policy. But with the unknown of the conflict in the Middle East continuing to rage, it's likely that there will be potential supply chain shocks and potential inflationary concerns somewhere down the road.
Could Peace Happen?
That being said, the one thing that could truly change this would be if we could get some type of lasting peace between the Americans and the Iranians, which at this point it looks like most players want out of the situation, but there's no real clear path as far as saving face is concerned. Somebody will have to walk away from this.
At this point in time, the Euro looks very much like a market that is trying to figure out the next couple of hundred pips, but there's so much external noise at the moment, it just doesn't know what to do. A clean break above the 50-day EMA could bring the buyers back into the marketplace, just as a clean break below 1.1350 could bring the sellers into the market. As things stand right now, this is a market that's still looking for answers, and therefore, short-term fluctuations will continue to be a real possibility.
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