- Looking at the Euro’s ongoing decline against the US dollar, technical levels and the impact of Federal Reserve policy have been driving where we go.
- Despite small rallies, I expect continued downside momentum as dollar strength persists across most pairs.
The Euro is starting to melt down a little bit against the US dollar, although in an orderly fashion, as we are well below the 1.1550 level. That area had been supported previously, and I think breaking through it does signal that we are going lower. Ultimately, I would anticipate that the Euro goes looking to the 1.14 level before it is all said and done.
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Market participants are still coming to terms with the fact that the Federal Reserve is likely to stay relatively tight. Most traders at this point are viewing this through the prism of the US dollar strengthening around the world. Although I think it does strengthen against the Euro, it’s not necessarily an indictment of the Euro itself. It’s just that the US dollar strength is becoming a real thing here.
Demand for treasuries is starting to pick up, and that drives demand for the dollar. Yields are down just a touch for the day, but not enough to make a huge difference. Therefore, I think we just have the perfect situation here to continue drifting lower. The 200-day EMA sits at the 1.14 level, and that’s an area I think will attract a lot of attention. If we can break down below there, then things could get rather ugly. But right now, I think we’re in a situation where it’s only a matter of time before we roll over on any rally.
The 50-day EMA is sitting at the 1.1649 level and drifting lower, so it is going to continue to be a bit of a ceiling for this market. Rallies at this point will more likely get sold into, and I am going to be doing the exact same thing. If we broke above the 1.17 level, then we would have to rethink the situation, but we’ve been progressively drifting lower since the September FOMC interest rate decision. The one this past week really didn’t give us any more comfort, so I think the US dollar continues to strengthen overall.
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