- The Euro shot higher during the trading session on Friday, but we turned around to show signs of hesitation.
- After all, we pierced the 200-day EMA only to turn around and drop about 60 pips.
- With this, I think you've got a situation where traders continue to look at this market as one that, although bullish, in the short term, the reality is longer term, we're very much in a bit of a range.
Keep in mind that the European Central Bank is likely to cut rates sooner than the Federal Reserve, so it makes sense that we have given back some of these gains. The 1.07 level underneath should be significant support, and if we were to break down below there, then we could go looking to the 1.06 level. On the other hand, if we were to take out the top of the candlestick for the day on Friday, it could open up a move to 1.09, possibly even 1.10 after that, although it could take some time to get anywhere at this point in time.
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Interest Rate Differential
The interest rate differential will probably favor the dollar more than anything else over the next year or two, but that doesn't necessarily mean that central banks in both regions won't be cutting rates eventually. At this point, it looks as if the EUR/USD market is likely to continue to see the idea of an interest rate cut in December as very possible for the Fed. But the ECB is likely to cut rates sometime later this summer. With that being said, I think we still favor the dollar over the Euro, but I don't necessarily think that we have a huge move coming one way or the other.
In fact, I suspect that we will probably spend most of the year trading in a somewhat range bound market in not only this pair but most other major currency pairs. This is the reaction to the fact that so many central banks around the world are not sure as to what they will eventually do.
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