The euro has drifted a little bit lower during the Friday session before heading into the weekend. This is interesting, because I think there are so many moving pieces out there that you will have to pay close attention to what happens in the news in order to get a position going. We are forming an “H pattern”, which looks quite a bit like the S&P 500 over the last couple of weeks. Because of this, it is apparent to me that we are trying to move all assets based upon the risk spectrum, with the US dollar winning the argument with so many problems.
The US dollar is strengthening basically due to interest rate differential, and that should continue to be the case against the euro. Furthermore, we have a lot of concerns on the Ukrainian border, which has people looking for the safety of the greenback or treasuries as well. In fact, we have seen money flowing back into the 10-year note over the last couple of days, which ironically brings the interest rate differential down. (Having said that, it is a very slight amount in comparison to what we had seen over the last couple of months.)
The 50 day EMA currently slices right through the consolidation that we have been in for a while, so it should not be a huge surprise to see choppy behavior. The ECB has just started to admit there is inflation out there, but the Europeans are nowhere near trying to guide rates higher, and I think it is probably only a matter of time before the US dollar picks up steam against the greenback. One has to wonder whether or not we are simply going to continue in a downtrend, or if we are trying to form some type of consolidation range?
To the upside, I believe that the 1.15 level is significant resistance as we had formed a “double top” in that general vicinity, while I believe that the 1.12 level underneath should offer a significant amount of support. I think we will continue to go back and forth, but at this point it is still easier to short this market then it is to buy it, especially if things kick off on the Ukrainian border as it will have the Europeans freaking out.
