The Euro continues to look very bearish against the greenback. This is pretty impressive, considering just how much we have fallen over the last several months, but it should also be noted that this pair tends to be very noisy and choppy. As I look at the daily chart, it’s obvious that the 50-Day EMA has acted as a bit of a trendline, so therefore it should not be a huge surprise to see that the pair pulled back from its highs during the Friday session.
The fact that we close this way on a Friday tells me that people are not willing to hang on to the Euro through the weekend, which speaks quite a bit about the attitude of market participants. The fact that we formed a shooting star also suggests that we are more likely than not going to continue in the same consolidation area that we have been in, with the 0.99 level offering a bit of support. I do believe that eventually, we break down because quite frankly, this market could not keep gains, despite the fact that the ECB is pretending that it is hawkish now.
Fundamentals still haven’t changed
Even though inflation is starting to cool off slightly in the United States, the reality is that the fight is far from done, and the “neutral rate” is going to be a lot higher than it is right now. That will have people looking for higher yields in America, and therefore it makes the US dollar attractive. Furthermore, energy issues abound in the European Union and will continue to do so for the foreseeable future. This winter could be very bad for the EU, as it will face several crises at the same time. Not only do you have a concern about energy, but you also have a concern about inflation simultaneously.
At this point, I look at this pair as one that you should be feeding all rallies and would not even begin to think about becoming bullish until the fundamentals change, and of course, we break above the 1.05 level, an area I have mentioned previously. This does not necessarily mean that we melt down, but that the overall general attitude is still lower.