The Euro took off during the Friday session, as we continue to see a lot of noise around the parity level. By doing so, it looks like we will continue to view this market as a market trying to break out of parity, and if and when it eventually does, we are likely to see a significant move lower. Algorithms usually get stuck when they get a daily close below par, so it will be interesting to see what happens. However, the market is likely to see a lot of negativity, but we may see a short-term bounce. In fact, this is exactly what I expect in the short term.
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Looking at the beginning, we might potentially go all the way to 1.02 above, which is a very noisy level and therefore might cause quite a bit of trouble. If we break above that level, we will likely go to 1.04. 1.04 was a support level previously, so ‘market memory’ may appear and give signals of indecision. In that case, I will sell as well. Once we see signs of exhaustion following the rally, I think that indicates that we will start selling once more.
Keep in mind that the Federal Reserve is currently doing everything in its power to tighten the market, and as long as this continues, tight monetary policy will push the US dollar higher. On the other side of the Atlantic, there is the European Central Bank that will raise the interest rate a little once or twice, But following this point, it is very likely that we will see the European Central Bank turn around and give up trying to raise interest rates, given that the EU economy is struggling. On top of that, with a lack of energy, it might cause a lot of trouble down the road, so I think the ECB is basically hands on.
This does not necessarily mean that we will collapse soon, but only that we are likely to continue selling rallies in this market. For this reason, I think we have a situation where the rally should be viewed as an opportunity to get “cheap US dollars”. The Federal Reserve will remain more aggressive and hawkish than the European Central Bank.
The chart was generated by . platform TradingView