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I have absolutely no interest in buying the euro until it breaks above the 1.06 level.
- The EUR/USD pair has been on a downward trajectory for some time, as we are threatening parity.
- As we are heading lower over the longer term, it makes sense, though we will eventually break through there.
- A lot of this is going to come down to what the Federal Reserve does going into the future, but it’s obvious that inflation is a major problem.
Rallies in August
Even if the market were to rally, I believe at this point in time there are plenty of areas above that could cause major issues. The 1.04 level is the next major resistance level, which extends to the 1.05 level. All things being equal, I believe that rallies heading into this month are going to be squashed, and it is probably only a matter of time before we see sellers return. This is especially true considering that it’s not just about the Federal Reserve, it’s about the absolute disaster that the European Union is.
Anytime you have a situation where energy could be an issue, there’s no real argument to be made for a currency to appreciate. In fact, Vladimir Putin has cut back gas to the EU down to just 20% of potential capacity. Ultimately, this will put quite a bit of negativity into this market over the longer term, so I think that anytime we rally, you have to be looking at signs of exhaustion for an opportunity to start shorting.
It’s also possible that we could send this market down to the 0.98 level, and below. It is going to be difficult to imagine a scenario where the euro turns around anytime soon, especially as the bond yield differential between the two economies is so wide. With this, I have absolutely no interest in buying the euro until it breaks above the 1.06 level. At that point, things could change, but it seems very unlikely to happen anytime soon.
As economic conditions continue to worsen, the US dollar will continue to strengthen based upon a flight to quality, something that I think will continue to be a major factor through the rest of the summer, perhaps even the rest of the year. Any move above the 1.06 level would have to be taken seriously, but it also would have to be accompanied by some type of shift in fundamentals.
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