I anticipate that given enough time, we break down even further.
The Euro has fallen a bit during the trading session on Thursday to Pierce below the 1.05 level. The 1.05 level of course attracts a certain amount of attention, and therefore it makes quite a bit of sense that we would see a little bit of a bounce. In fact, by the end of the day we did break back above the 1.05 level, perhaps helped in part by the fact that the GDP number was horrific in the United States.
The 1.05 level is an area that would attract a lot of attention regardless, and the fact that we have dropped that hard also suggests that we cannot simply slice through it. I think we get a short-term rally that will more than likely show a significant amount of resistance. That resistance will probably show up in the next couple of days, and therefore I think it offers a nice selling opportunity. Quite frankly, the US dollar has gotten a bit ahead of itself, so I think a little bit of profit-taking makes quite a bit of sense. This is especially true as we are heading into the weekend because nobody wants to be overly exposed while they cannot correct a position.
On the upside, the 1.08 level should be significant resistance, right along with the 50 Day EMA which is racing toward that level as well. Because of this, I think that we should get quite a bit of selling pressure if we come anywhere near the 1.08 level, something that I do not necessarily think that the market has in it. The interest rate differential between the United States and Europe continues to favor the United States, and with the Federal Reserve looking to fight massive inflation, is very likely that the US dollar will continue to attract inflows as bonds yield much more on the side of the ocean.
If the European Central Bank was able to get its attitude changed, it would start with the resolution to the natural gas problem. Quite frankly, an economy that has expensive or less natural gas than necessary is not an economy that is going to function healthily. There are far too many issues in the European Union right now to think that the currency will reflect strength. I anticipate that given enough time, we break down even further.
