The euro continues to see pressure from both the French debt situation and the geopolitics in the Middle East. Will energy disruptions cause problems for the EU?
EUR/USD
The euro has spent most of October going sideways as we have been testing a crucial 1.12 level. That being said, there are a lot of moving pieces in Europe right now that could continue to come into play. This market will be one that I'm watching not only on the charts, but also in the headlines.
Keep in mind that there are a couple of things that have really seemed to grip the attention of traders around the world. The first one, of course, is the spiraling chaos in the French debt markets. Rising rates in France have not lifted the euro because, quite frankly, there are a lot of concerns about whether or not the French are going to get their fiscal house in order. There are French elections that will have a major impact on this as well.
For the month of November, we probably have quite a bit of sideways action. At the same time, you have the Federal Reserve, which is more likely than not going to be raising rates at the December meeting. For the month of November, we probably have quite a bit of sideways action that will be driven not only by geopolitical headlines, but the bond markets.
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Interest rates in the United States have cooled off a bit, but that has not been enough to get the euro to bounce. Quite frankly, it would not surprise me at all to see more of the same. It's about whether or not you feel safe in the United States or dealing with the European debt situation, which has started to spread to Italy and Greece as well. If that continues to be a thing here, that really could work against the value of the euro.
The other component that I'm watching very closely is energy. There are going to be various serious problems in Europe this winter when it comes to energy. Natural gas pricing has exploded in Europe, and that more likely than not will put serious pressure on the industrial base in Germany, as well as other countries.
Quite frankly, the U.S. dollar is probing pretty significant support, and it's very likely that it could give way unless something drastically changes with the Middle East. No energy is not good for an economy. While the European Union finds itself in a political mess, it has also got an energy crisis just waiting to happen as well.
My take
I look at this as a market that is probably going to remain in a sell-the-rally, at least until we break above 1.1350. In other words, we should continue to have downward pressure in this market, at least until the Middle East settles down and France pulls it together. I am negative.
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