The euro rallied a bit on Tuesday but gave up the early gains to show signs of weakness yet again. We are hanging around the 1.04 level, an area that we have seen plenty of support at previously and bouncing the way we have from there does suggest that it’s important.
That being said, the shape of the candlestick tells you just how weak this market is, and it’s likely that we will possibly even go down to the parity level. The parity level attracts a lot of headline noise. As things stand right now, I do not see anything that would keep the market from going down there, so I continue to look at this through the prism of selling rallies that show signs of exhaustion.
If we do break above the top of the candlestick, that does not necessarily mean that the market is going to suddenly change its trend, but it does suggest that perhaps we are going to find higher levels to pick up “cheap US dollars from.” Ultimately, I think that it’s until we get above the 1.09 level that the trend will have changed, and I don’t see how it does due to the fact that the Federal Reserve has no choice whatsoever but to continue to raise interest rates.
Any signs of exhaustion during a rally is what I will be jumping all over, and I think that we are more than likely going to continue to see a relentless selloff. In fact, we are starting to see a little bit more of a selloff on the short-term chart, so I think you have to look at any rally with major suspicion. That being said, if we were to break above the 1.09 level, then it’s likely that it will be a major trend change, and at that point, I would anticipate that the euro would go looking to the 1.12 level above. That seems to be unlikely, and I give it about a 10% chance at best. The euro is going to continue to struggle due to the fact that the European Union has a world of problems at the moment, not the least of which is going to be the fact that energy is a major problem.