While the interest rate differential is starting to tighten between the 2 economies, if we have a lot of concerns out there about global growth, that almost certainly will drive money into the US dollar.
The EUR/USD fell a bit during the trading session on Thursday, as the ECB raised interest rates by 25 basis points. However, the PPI numbers out of the United States offered quite a bit of inflationary headwinds to the markets, and therefore the US dollar rallied as well. With that being said, the market is likely to continue to see a lot of noisy behavior, and therefore I think you’ve got a situation where we probably see a bit of follow-through to the downside, we also must keep an eye on the 1.25 level. If we were to retake that area, then one would have to assume that the bullish traders would see some sign of hope.
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Ultimately, I do think that we have a lot of problems out there and it could continue to lift the US dollar, at least in the short term. There are a lot of concerns when it comes to the global economy, and that should continue to help the US dollar overall. The market is very unlikely to see a lot of clarity, because quite frankly that’s been the game all along, a lot of trouble and uncertainty. If that’s going to be the case, then I think you must look at this through the prism of risk appetite and of course interest rate differential. While the interest rate differential is starting to tighten between the 2 economies, if we have a lot of concerns out there about global growth, that almost certainly will drive money into the US dollar.
- With this, you need to be cautious about your position sizing but also recognize that there is a lot of confusion out there, and quite frankly it continues to be very dangerous to trade large amounts of money at this point in time.
- If we break down from here, the 1.06 level could be a significant support level, while the 1.08 level above could be the target, but we would need to get through quite a bit of resistance just above to make that happen. At this point, it seems less and less likely.
Signal: Now that the market has dropped a bit, the market is signaling sell. I am short here, with a stop at 1.0750, targeting 1.0512
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