EUR/USD
The Euro looks as if it is running into a little bit of trouble here at 1.18, which is not a huge surprise considering that it’s an area that’s been very noisy for some time. And of course, on Thursday, we have the ECB interest rate decision. It would not surprise me at all to have traders a little bit hesitant to jump feet first into the euro ahead of that important conference.
Furthermore, this just solidifies more of the same type of trading action. So at this point, I suggest that perhaps there’s a little bit of a pullback coming. I don’t think it’s a trend change. I don’t think it’s some type of massive sell-off. I just think it’s a market that doesn’t have enough momentum to break out at least yet.
GBP/USD
The British pound is struggling with the 1.36 level. That’s an area that’s been important multiple times going back to the middle of July. And then before that, most of June. So a pullback from here makes a bit of sense as well. Again, I don’t think this is necessarily US dollar strength. I think it’s more or less running out of momentum.
There are questions out there as to what’s going on with the global economy. And if the global economy does in fact start to tank a bit, don’t be surprised to see the US dollar suddenly attract a lot of inflows. We are starting to see in some of the bond markets in the United States a bit of a push into driving prices higher. And of course, if you’re a foreign investor, you have to use US dollars. So that’s one of the major reasons it’s considered to be a safety currency.
USD/CHF
The US dollar looks like it’s trying to find a floor against the Swiss franc, also with the 0.79 level being a hard floor at the moment. I think this is probably more of a short-term bounce because quite frankly, if the US dollar suddenly strengthens, then there’s a very real world in which it may not be able to strengthen as much or at all against the Swiss franc. It’s really going to come down to how bad are things.
In the short term though, I think a small bounce certainly could happen. We’ve been basically range bound since the beginning of July between 0.79 and 0.81. We are at the bottom of that range. We are trying to form a bit of a hammer. So this might be one worth watching. Although full disclosure, a much more comfortable shorting the euro a couple of days ahead of in central bank decision than I am trying to fight the freight train known as the Swiss Franc.