The Euro fell again on Wednesday to test the 50 Day EMA yet again.
EUR/USD
The Euro has fallen early on Wednesday as we continue to see yields in America rise. Quite frankly, I think this is a situation where the only thing you can expect is volatility. That does make a certain amount of sense considering that we have an FOMC statement later in the day, interest rate decision, etc. And then tomorrow we have an ECB interest rate decision.
That being said, I don’t know that after all of this is done there will be a major change in the attitude. I think both of these central banks are going to be dealing with potential energy inflation problems. In that environment, it is very difficult to really get away from higher rates in both the United States and places like Germany.
Central Bank Decisions and Market Range
We are hanging around the 50-day EMA and that of course in and of itself attracts a certain amount of attention. But the main reason is that I hardly ever spend any real time trading the Euro, you can see going back to this time last year, we’ve been in a range. As we are not at the top or bottom of the range, there isn’t a whole lot to do.
I get a lot of questions and requests about the Euro, what am I going to do, and that’s mainly the shortsightedness of retail traders and looking at the spread. The spread is irrelevant because the pair doesn’t move. It’s almost like trading bonds. In this environment, I don’t think much will change.
We still have about a 1.4 differential on the 10-year yield between the United States and Germany and that will probably remain. There could be a little bit of surprise out of the European Central Bank. I think the Federal Reserve will continue to basically speak nonsense at the press conference, buying time.
With energy shocks and inflation being a very real problem in Europe, it’s not completely out of the realm of possibility that the ECB starts to loosen a little bit down the road, but we'll have to keep an eye on inflation. Inflation may just get so far out of control that they can't. In fact, ECB might be looking at stagflation. The next couple of days could tell us a lot, but unfortunately, I think it’s just going to tell us more of the same as we hang out in the same range between 1.40 and essentially 1.1850. Until we break out of this range, I don't know that a lot has changed.