- The Euro has pulled back a bit in the early hours of Monday, which may be somewhat surprising considering that at the end of the Friday session, traders were betting heavily on a rate cutting cycle.
- This is a situation where traders assumed that the US dollar would fall apart.
- However, we have seen the opposite happen, and therefore, I think people are starting to ask questions of whether the US economy, and then by extension, the world economy, is going to slow down.
Rangebound?
I think at this point the Euro is likely to continue to test the range that we have been in for some time now. This is a situation where the 1.16 level is acting as support, while the 1.18 level is acting as resistance. I think this is the area where the market will probably reside, at least until it gets more information. The summer is typically quiet and lacks volume, and we are in the midst of summer vacation season as well, so it all adds up to a potential indecision area.
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I also recognize that the next big event will be the Federal Reserve and its press conference in the September meeting. Until then, we will probably be watching economic figures, because the global economy slowing down will be a huge benefit for the US dollar, as the US Treasury market will be a safe haven, which will take US dollars to obtain.
The action on Monday is a bit negative, but at this point in time, it isn’t massively negative. It is possible that the market will simply drop just to find a bit of buying pressure at lower levels. However, if we were to drop to the 1.15 level, this would be a bad sign for the pair. You would more than likely see the US dollar strengthen not only here, but against multiple other currencies as well.
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