The Euro continues to see a lot of noisy action on Tuesday, as we have given back the initial push higher that we had seen.
EUR/USD
The euro initially rallied during trading on Tuesday but has given back some of the strength right at that familiar 1.12 level. It is not a huge surprise, considering that we have seen this area offer a little bit of trouble over the last couple of days.
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Part of the movement, I believe, was due to the fact that the Iranians are willing to talk to the Americans. There was some leak from a media source somewhere in the Middle East that I had never heard of that suggested there were some concessions made on the nuclear program by the Iranians and the Americans on the side of frozen funds. Whether or not that proves to be true remains an open question.
But ultimately, this looks like a market that I think is going to continue to fade rallies.
The interest rate differential favors the Federal Reserve quite significantly, and the ECB, at its last meeting last week, basically left rate policy as an open question, while the Federal Reserve is expected to raise rates in December. So, not only does the U.S. dollar pay you to hold it against the euro, but it is probably going to pay you more in 6 weeks or so.
We will just have to wait and see how that plays out, but it certainly looks like any rally at this point in time continues to get sold into. You also have to keep in mind that the European Union might have some major energy problems this winter if this Middle Eastern situation does not get any better. Natural gas, for example, has at least tripled in price on the continent that I know of, maybe quadrupled.
With this, I like fading rallies at least until we break above 1.1350.
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