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You need to pay close attention to the fact that much of the world looks as if it is slowing down, which has money looking for the US dollar.
The euro was somewhat bullish towards the end of the month of May, but we are going to continue to see a lot of issues around the world that could cause problems for risk appetite. That being said, it is obvious that the euro was oversold, so a bit of a bounce does make sense. This is what we have seen, and recently Christine Lagarde has suggested that perhaps the ECB may even be willing to raise interest rates by 25 basis points. This has been bullish for the euro, albeit from a short-term perspective.
Keep in mind that as risk appetite continues to be in question, the euro will eventually suffer at the hands of the greenback. You cannot go in one direction forever, and that is going to be a situation where you finally get what we have seen over the last several days of the month. The 1.08 level above is an area that had previously been significant support, and as a result, “market memory” will come into the picture as it should offer resistance.
The Federal Reserve continues to be extraordinarily tight with its monetary policy, and of course, speakers continue to be hawkish as well. As long as that is the case, the US dollar will continue to strengthen. Beyond that, you need to pay close attention to the fact that much of the world looks as if it is slowing down, which has money looking for the US dollar.
If the market were to break above the 1.08 level on a daily close, it could push the euro toward the 1.10 level, but I think it is somewhat unlikely based on the bond rate differential and fear out there. Trends in the Forex market do tend to last for quite some time, but we do get the occasional vicious rally. As I write this article, we are in the midst of one of those rallies, but they offer an opportunity to get involved and start buying “cheap US dollars.” Signs of exhaustion will be jumped upon and pushed to reach the 1.04 level underneath, where we had bounced from previously. I believe that eventually, we will break down below that level, albeit more likely than not toward the end of the summer.
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