The EUR/USD pair has rallied significantly during the trading session on Thursday, mainly in reaction to the CPI numbers in the United States being a bit lower than anticipated. This have the algorithmic traders coming into the market right away, but as I record this it’s obvious that we are running out of momentum rather quickly. Because of this, I think that we should continue to go lower, but I think there is the possibility that we may bounce around in this general vicinity before falling again. After all, the Federal Reserve is the only central bank of the world looking likely to raise interest rates anytime soon, and that of course favors the greenback in general.
Contrast that with a consistent range of disappointing European economic figures, and it makes sense of this market continues to drift lower. Mario Draghi recently suggested that ultra-low interest rate should continue to be the case for the near-term, it has put a bit of negativity into the Euro anyway. With that being the case, I think that the market should reach towards the 1.18 level, and then possibly the 1.15 level over the course of the summer.
I believe that the 1.21 level above is a major resistance barrier, and I think that if we were to break above there we could send this market much higher, perhaps the 1.25 handle. I don’t think is going to happen, but it is a possibility to keep that potential in mind.
The British pound has been going sideways for several days now, and it looks like the trendline is offering a significant amount of support. I think that if we can break below the 1.3475 handle, the market is likely to continue to go lower, as we have seen US dollar strength for some time interestingly enough, the miss with the CPI number in the United States caused a little bit of a reaction to the upside, but not much. This tells me that the uptrend line could struggle to hold, and if that’s the case it’s only a matter of time before we break down to the 1.33 handle, perhaps even the 1.30 level after that.
I believe that volatility will continue to be a major factor in this market, because we have a lot of concerns beyond the Federal Reserve. We have the negotiations between the United Kingdom and the European Union, and that of course is something that could cause volatility in this currency. If we break down from here, I think we could unwind rather quickly, because this is such a significant uptrend line. Otherwise, if we break above the 1.3650 level, it’s likely that the market will continue to go higher and perhaps reach towards the 1.40 level. Currently, the uptrend line is offering significant support, but I also recognize that the US dollar looks stronger against most currencies around the world lately, and of course the British pound will be any different if that continues.
The Australian dollar has been in a very negative move for some time. However, the last couple of sessions have been a little bit healthier than previously shown, and it looks as if the CPI figures in the United States only turbocharge the move. After all, it shows that inflation is a bit lighter than anticipated. However, the longer-term downtrend will demand attention. While the CPI figures are lower than anticipated, the longer-term outlook for the US dollar is still stronger due to the fact that the Federal Reserve looks to be the only central bank in the world of consequence that is raising interest rates anytime soon. I believe that we will eventually see the market roll over, and it’s not until we break above the 0.7575 level that I would be impressed by this rally. When you look at this chart, yes it has been a nice bounce, but we are starting to dig into major resistance, and as I record this it’s likely that we may run into a bit of trouble here. After all, this is a market that has been negative for some time, and I think that the overall attitude has not changed, and spite of the CPI figures.
The Federal Reserve will raise interest rates later this year, so this knee-jerk reaction is probably going to be a nice opportunity to pick up the US dollar “on the cheap.” It’s not that I expect some type of major meltdown, it’s just that I don’t think the trend has changed.
The US dollar has pulled back rather significantly during the trading session on Thursday, reaching down towards the ¥109.25 level. This is an area that was resistance over the last several days, and now it’s offering support. That’s exactly what you expect, and when I look at this chart, I cannot help but notice that we could be forming some type of big “W pattern” which of course is a very bullish sign. I think that the ¥110 level is an area that will take several attempts to break above. If we can break above there, then the market goes looking towards the ¥112.50 level. Otherwise, every time we pull back it should be looked at as an opportunity to pick up momentum.
Ultimately, I think that we will find value hunters given enough time, because quite frankly I don’t think the Federal Reserve is going to change its plans. The first even mildly hawkish words out of a Federal Reserve member, this market turned right back around to slamming into the ¥110 level. I think it will take more than just one more attempt, but I think this is also the move and that will define what happens this summer. I believe that there is a significant amount of support down to at least the ¥107.50 level, so I look at this as a potential buying opportunity and will do so at the first signs of stability.