There’s nothing from the fundamental standpoint that suggests we should see this market take off.
The euro rallied rather significantly on Monday to reach to the 1.02 region. This is an area that I think is going to continue to be very noisy and resistant to upward pressure, but that does not mean it cannot be broken above. At this point, I’m hoping to see some type of exhaustion that I can start fading, as the US dollar should continue to outshine the euro.
Perhaps traders are simply taking profit ahead of the European Central Bank meeting, not to mention the Federal Reserve meeting. At this point, the ECB could very well do an interest rate hike of 25 basis points, but that will get a bump in the road compared to what we are seeing from the Federal Reserve. The Federal Reserve is more likely than not going to raise interest rates by at least 75 basis points, and perhaps even 100. Beyond that, the Federal Reserve also has several interest rate hikes to go, so this point it should still favor the US dollar.
This is not to say that some people are not trying to get ahead of the curve, but it’s so far out there right now that I think you are quite a bit early. After all, the European economy has to deal with the fact that it has no energy. That’s obviously a big issue and it’s very likely that the ECB will only raise interest rates once or twice, and then begin quantitative easing yet again. Quite frankly, it’s only a matter of time before all central banks start that again because that’s what they do.
In the short term, I believe that the market will see resistance at the 1.02 level, and even more at the 1.04 level. If we can get to the 1.04 level, and get some type of exhaustion candle on the daily chart, I will be very interested in picking up “cheap US dollars.” This is a market it’s been in a downtrend and probably a bit overdone as of late, so it does make a certain amount of sense that we get this bounce. However, there’s nothing from the fundamental standpoint that suggests we should see this market take off. Because of this, I’m simply waiting for an opportunity to fade the rally.