The Euro has rallied rather significantly during the trading session on Thursday to reach towards the 1.11 handle. The market has a significant amount of resistance built into it between the 1.11 level and the 1.12 level. This is an area that previously had been a lot of support, so I am waiting to see whether or not we get some type of exhaustion that we can start shorting. Yes, I recognize that the Euro has rallied over the last couple of days quite nicely, but it is only a matter of time before US dollar strength could come back into the picture.
As the Federal Reserve is going to continue to tighten monetary policy, that could lift the US dollar, and therefore push this market lower. The Euro had gotten a bit oversold recently, so the fact that we have rallied the way we have is probably not a huge surprise. I have no interest in buying this pair, at least not until we see a major breakout, something that has yet to happen.
The 1.12 level is an area that we need to clear at the very least, as that previous support level being recaptured would be a strong sign. Furthermore, the 50 Day EMA sits right in the same area, so it all ties together quite nicely. I will be watching this market on Friday, as it is more likely than not that traders may not want to carry a bunch of risk into the weekend. Furthermore, you have to worry about the Euro due to the fact that the European Union looks as if it is in serious trouble economically, although it must be said that the entire world is probably heading towards a slowdown.
Pay close attention to the interest rate differential, because if it does in fact continue to stretch between the two, that should help the dollar over the longer term. We had a nice bounce at this point, and that was probably something that was needed for a while. Signs of exhaustion will be jumped upon by me, but as I said, if we get a daily close above the 1.12 handle, then it may reassess the situation, especially if we close heading into the weekend above that level. Expect volatility, but that can be said about anything at this point.