The euro rallied a bit on Wednesday to reach towards the 50-day EMA yet again. That being said, we have sold off in order to form a shooting star for the third day in a row. At this point, it looks as if the euro simply does not have the momentum to continue going higher, and now I believe it is only a matter of time before we put a serious challenge to the 1.1290 level underneath. At this point in time, if we break down below that level, it is likely that the euro will go to the 1.12 level.
There are a multitude of reasons why this may happen, not the least of which would be the Russia/Ukraine crisis that has people worried about the European region, and that has had people running towards the US dollar for safety. Furthermore, we continue to see the US Treasury market try to turn around, showing that demand for paper is starting to pick up again.
Furthermore, we have economic numbers out of the European Union showing signs of weakness, so at this point it is likely that the market will continue to see downward pressure as the euro represents an economy that seems to be slowing down, and unlike the Federal Reserve, the European Central Bank is nowhere near tightening monetary policy. After all, the market has seen the Federal Reserve get extraordinarily hawkish, so it does make a certain amount of sense that the US dollar continues to strengthen. In fact, it is a bit of a “carry trade”, which we are seeing everywhere in the Forex markets.
We see this in several different currency pairs, and it is a bit ironic to see the US dollar as a high-yielding currency, but right now it is in comparison to many others. Because of this, and the fact that the European Central Bank has walked back the idea of any rate hikes, I believe that the euro will continue to struggle overall, not just against the US dollar. With that in mind, I like fading short-term rallies to take advantage of “value” when it comes to the greenback. If we can break down below the 1.12 handle, then we could go much lower.
