This is a market that I think will continue to struggle with rallies, so I am looking for signs of exhaustion to start shorting again.
The euro rallied just a bit on Monday to kick off the week, threatening the 1.10 level. This is an area that probably has a little bit of psychological importance to it, but at the end of the day, I do not necessarily think that it is a massive area as we have sliced through it a couple of times already. Because of this, even if we do rally from here, I do not necessarily think that the euro is ready to recover completely.
On the upside, the 1.11 level is the beginning of resistance extending to the 1.12 level, which is further backed up by the 50-day EMA. The 50-day EMA is also sloping lower, so it does suggest that a lot of technical dynamic resistance may be found in that area, so altogether I think that this is simply a market in which you are looking for rallies to short. However, you cannot ignore fundamentals, and a big fundamental announcement is coming in the next couple of days.
Keep in mind that the FOMC meeting happens this week, and the markets will be paying close attention to what the Federal Reserve is going to do going forward. So far, Wall Street has priced in seven interest rate hikes coming out of the Fed, but that does not seem to be very likely at this point. Having said that, they are probably going to stay somewhat hawkish, as inflation is starting to become a serious problem in the United States. If that is going to be the case, then it is likely that the statement coming out on Wednesday afternoon will be the most important thing to pay attention to. If that is going to be the case, then traders will try to get an idea as to whether or not the Fed is going to continue to tighten. If they do, that should strengthen the US dollar.
Europe also has to worry about a war in Ukraine, and a serious lack of growth on the continent. Inflation in Europe is rather tight, but at the same time, the European Central Bank does not look as if it is going to do anything aggressive anytime soon. This is a market that I think will continue to struggle with rallies, so I am looking for signs of exhaustion to start shorting again.
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