The Euro pulled back aggressively at the start of the Friday session, but found enough buyers below the 1.04 level to turn things around. By doing so, The market appears to be struggling in this area, and may be preparing for a rebound. If that’s the case, I suspect there will be plenty of sellers willing to step in and start shorting at the first signs of exhaustion.
On that bounce, I would like to point out that 1.05 could be a difficult area, followed by 1.06 which should be hard to break. If we pass level 1.06, We will be looking to try to get to the 1.08 level, which is an area that should be very difficult to get past. In fact, at this point, I would even consider a potential formation to change direction.
The Federal Reserve continues to find plenty of reasons to tighten monetary policy in the US, and that will have a huge impact on what happens to the US dollar. Hence with this pair. For this reason, I don’t expect the trend to change soon, and I think the Euro has its own problems too. One of the most obvious issues at the moment with the euro is that the central bank has to worry about energy supplies and inflation at the same time. This is a very difficult situation, so I think that the euro is unlikely to rise in a permanent way.
If we break down significantly, the first target will be the 1.02 level, followed by the parity level. I expect we’ll see parity sometime this summer, but I don’t know exactly when. In the end, this pair tends to be very volatile and slow most of the time. So you simply have to setup in the right direction, and wait for the market to make a move. Whether or not we will reach below par is a completely open question at this point, and I expect the question we will be asking ourselves around August or September. On the other hand, if the Fed changes its overall stance, it could change the general trend in this pair, as well as many other currency pairs.