Potential signal:
- Selling here, with a stop of 1.1450, and a target of 1.1320.
The Euro fell hard on Tuesday to break below a support level that has been respected for over a year. At this point, we are seeing the USD strengthen against almost everything.
EUR/USD
The Euro broke down pretty significantly during the trading session here on Tuesday, breaking below the 1.14 level. The 1.14 level being broken is a very negative turn of events and could kick off an even deeper drop in the Euro. Ultimately, this is a market that I think, in the longer term, we could be looking at 1.12, 1.10, and even 1.08 if this keeps up.
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Keep in mind that we may get a little bit of a bounce, and I think at that point in time, you probably look for signs of exhaustion in order to take advantage of a strengthening US dollar, which has been seen across the Forex world in general.
Interest Rate Differentials and Central Bank Policy
What I find interesting is that the interest rates in the United States have dropped a bit during the day, yet the Euro did as well. So, when you look at the overall situation, it seems as if traders are betting on the European Central Bank not having to do much as far as tightening is concerned, and they may just simply be sitting on the sidelines.
At the same time, the Federal Reserve is expected to add 25 basis points to the interest rate by the end of the year, so the interest rate differential will continue to pay you if you are short of this EUR/USD pair.
I'm watching this very closely because we're right here where I think the trap door could open. Rallies again, I would look at with a certain amount of suspicion, at least until we recapture the 1.15 level.
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