Potential signal:
- I am a seller on a daily close below 1.15, with a stop at 1.16 and a target of 1.1350
The Euro has rallied during the trading session against the US dollar on Wednesday. But at this point in time, we have to pay close attention because there is another ugly candlestick, which certain traders would call a fair value gap. Not really a big fan of that, but that's going to be enough to drive some retail traders into shorting, but that's not necessarily the wrong outlook.
We formed a huge double top at the 1.18 level, and that is something to think about. The Federal Reserve is expected to cut rates in theory by the end of the year, but with the European tariffs being so bad from the European point of view, that's what sent this lower. The question now is, will the economic data in the United States be bad enough to get the Fed to start cutting aggressively.
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Jerome Powell threw some cold water on that during his last press conference saying that they would be extraordinarily efficient at cutting rates, meaning that they wouldn't do a “one and done” and then reverse like they've kind of done over the last couple of years. In other words, we would see a rate cutting cycle. If the economic outlook in the United States starts to sour, it does tend to work against the US dollar initially.
Treasures
But eventually people start running into the US treasury markets and that makes the dollar go higher. After all, people want safety in times of economic slowdown. If we do in fact see that, not only do you see the stock markets fall, at least in theory, a lot of times you see the US dollar really pick up some strength. So, we'll have to wait and see how this plays out, but we’re at a major point of inflection and this is a chart you should watch every day. It'll give you an idea as to where the US dollar might end up going. After all, it does tend to move in the same direction in general, and the euro is the biggest part of the US dollar index, so pay close attention to that. Not really a trade setting up here quite yet, but if we were to break back below the 1.15 level, things would get very interesting all of a sudden.
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