Euro Plunges But Finds Buyers

I think this is a “fade the rally” type of market, and I don’t see how that changed during the Wednesday session.

The euro initially fell on Wednesday but found buyers after the inflation number came out. Perhaps people have started to price in the idea of “peak inflation”, but that does not change the overall issues in the European Union. More than anything else, I think we have a situation where the euro was oversold and of course the parity level has a certain amount of psychology attached to it.

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If that’s the case, I think that rallies will get sold into, especially near the 1.02 level, an area that has a certain amount of psychology attached to it, as well as selling pressure. If we break above there, then the euro is going to be looking at the 1.04 level after that. The 1.04 level has a lot of history attached to it, so I think there’s a lot of “market memory” to be paying attention to.

Alternatively, we could turn around and break down below the parity level, which could open up a fresh leg of selling, perhaps down to the 0.98 level. Underneath there, we could be looking at the 0.96 level, but I don’t necessarily think it’s going to be easy to get to that area. Furthermore, we are oversold so this rally is probably something that needed to happen regardless. The inflation numbers in the United States have come out rather strong, but I’m already starting to hear the narrative about how the Federal Reserve is closer to the end of interest rate hikes than the beginning. It’s astonishing how Wall Street can come up with that narrative, but they always do, finding a reason to get bullish.

In general, I think this is a “fade the rally” type of market, and I don’t see how that changed during the Wednesday session. Over the longer term, is very likely that we will continue to see plenty of downward pressure, but I think we also have to look at this through the prism of a very overextended downtrend that needs to take a bit of a break. However, if we were to break down through the support you cannot argue with that either. The European Union has a whole host of issues, not the least of which will be problems finding energy. That’s not exactly a bullish scenario.

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