The Euro initially tried to bounce back a bit on Monday, as we continue to see rates in the United States cause havoc. With this, we are looking at a “fade the rally” type of market.
EUR/USD
The Euro initially tried to recover during the trading session on Monday but then fell through the 1.15 level. The 1.15 level of course is an area that has been important multiple times, and I think this will continue to be a major area of contention.
Now that we are dropping from there, I think we have the 1.14 level in our sights, and this obviously would be an area of importance as well because it would be yet another round figure and swing low from the past that was broken. If we break through there, I think the Euro will go to the 1.11 level.
Market Outlook and Interest Rate Differentials
Ultimately, I still favor shorting this market anytime it rallies and shows signs of hesitation. That's exactly how it's played out for several weeks now and the interest rate differential does continue to favor the United States. Because of this, traders will continue to look to the US dollar for not only safety, but yield.
Europe also has the added pressure of perhaps being short of energy this year as Qatari natural gas is greatly diminished and of course the infrastructure in that part of the world has been damaged quite a bit. So, with that being the case, it puts the United States in the driver's seat as an energy independent country and an exporter.
I think that's part of what's going on here as well. As long as the 10-year yield in the United States stays above 4.3%, I think it's difficult for the U.S. Dollar to really fall apart in these markets.