It would not surprise me at all to see a pullback from here, especially if the jobs report is stronger than anticipated.
The euro rallied a bit on Wednesday as we continue to see the euro move higher against the US dollar. That being said, I think you do have to keep in the back of your mind that the European Central Bank is meeting on Friday, and although not expected to do much, the reality is that traders will be listening very closely to Christine Largarde and what she has to say about the future direction of the bank. Ultimately, this is a market that might be trying to pick up a little bit of momentum, but we are entering a huge area of supply, and that is something that needs to be paid close attention to. Because of this, I think that the 50 day EMA is symbolic of the longer-term trend.
Thursday might be kind of quiet, as the markets are looking for some type of directionality out of both the ECB and the Non-Farm Payroll numbers. This will have a major influence on the US dollar, so it will be interesting to see whether or not everything holds together. It would not surprise me at all to see a pullback from here, especially if the jobs report is stronger than anticipated as it would almost certainly mean that the Federal Reserve has yet another reason to get tight with its monetary policy.
The ECB is nowhere near tightening monetary policy, and in fact has suggested recently that there will be nothing along the lines of tightening this year. I anticipate that Christine Largarde will continue to express that opinion, as the inflationary numbers look set to slow down. If that is going to be the case, then there should be no reason for Europe to tighten. For that matter, there is probably no real reason for the Federal Reserve to do so, but they have already stated that they are going to, and there is political pressure coming from the Biden administration to do something about the short-term inflation as the mid-term elections are on deck. While the Federal Reserve pretends that it is an independent agency, it certainly is not and, as a result, it is likely that the Federal Reserve will have to do something in order to fight short-term inflationary pressures, leading to tightening.
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