I think we have further downside, but short-term rallies could happen.
The US dollar has been strong against almost everything during the trading session on Monday, which is a continuation of what we have seen since last Thursday. This has been another move that the market got lost with the Federal Reserve. You’ve seen this happen more than once, where the market participants seem to think that Jerome Powell is dovish, only to change their mind the next day. Furthermore, the jobs number was much hotter than anticipated, suggesting that the Federal Reserve is in fact going to have to stay tight for longer than people want to believe.
Federal Reserve VS European Central bank
- If that’s going to be the case, then it makes a certain amount of sense of the US dollar would rally against the Euro, and of course the interest rates rising has had a major influence on what’s happened here.
- The ECB continues to suggest that they have more tightening to do, but they may very well pause in May.
- In other words, the cycle of tightening for the ECB will be a bit more shallow than the Federal Reserve.
Underneath, we have the 50-Day EMA, an indicator that a lot of people pay close attention to so therefore I would anticipate a little bit of support, but at the end of the day I think we are probably heading toward the 200-Day EMA before it is all said and done, which does make a certain amount of sense considering that it is approaching the crucial 1.05 level. That being said, we have fallen rather hard so I would not be surprised at all to see a little bit of a bounce, if for no other reason than to have a bit of a relief rally.
In order to get overly bullish, we would need to see an impulsive candlestick to the upside or some type of fundamental reason to change our mind. Breaking above the 1.10 level would certainly do it, but that seems very unlikely considering we have been dropping an entire handle per day since touching that level. With this, I think we have further downside, but short-term rallies could happen. Signs of exhaustion after one of these is a welcomed shorting opportunity as long as interest rates in America continue to look very strong, which of course the yield curve is inverted something like 81 basis points, which screams recession.
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