The euro tried to rally against the US dollar at the start of the Monday session, but lost almost all of its gains in another sign of weakness. Monday was Independence Day in the US, so obviously size will be a major issue. The fact that the Euro has not been able to take advantage of the lack of US trading volumes may indicate more than ever the general direction of this market.
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US bond yields continue to rise and have outperformed the European Union. For this reason, the pair is likely to continue falling. I will continue to sell advances, as I see a lot of noise upstairs. The 1.06 level appears to be unusually resistant, while the 1.08 level is essentially the “market cap” at the moment. We’ll have to skip all of that in order to start looking at the idea of a change of direction.
To the downside, the market has obviously been negative for some time, and we broke below 1.04 a few times, so if we were to make a ‘lower bottom’ then this would only be a negative EUR development going forward. I think that will happen with enough time, as the Euro looks to reach the 1.02 level, followed by the parity level sometime this summer. With the European Central Bank doing all it can to keep the economy faltering, it is unlikely that they will be able to do more than one or two token rate hikes. qAt this point, the consensus is that they might raise 50 basis points. On the other side of the equation is the Fed, which has already promised to raise another rate by 100 basis points, so this will continue to make US bonds more attractive, certainly more so than the European Union.
In the end, the direction of this pair is likely to be in the hands of the Federal Reserve more than anyone else, but we also have external factors such as the war in Ukraine, the lack of energy in Europe, and the fact that there is such a huge divide among all the member states economically. With that in mind, it is difficult to be bullish on this pair any time soon.
The chart was generated by . platform TradingView