- The Euro has been extraordinarily noisy during the trading session on Wednesday, as there is lot of questioning out there as to whether or not the US dollar is going to lose its status as the world’s reserve currency.
- I don’t believe this, and the only reason I bring this up is that about the time you hear these types of statements, you know that you’re close to the end of selling in the greenback.
- Now that doesn’t necessarily mean that we are going to see the euro crumble, but what I think it does suggest is that we have been overbought, and we have seen a pretty significant pullback over the last 48 hours.
The 1.12 level underneath is a significant amount of support just waiting to happen as it had been major resistance, all things being equal. That’s an area where we will have to make a major inflection point. We will have to make a lot of decisions in that area.
A Range Forming?
Ultimately, I think we’ve got a situation where we are in the middle of a potential range between the 1.12 and 1.15 level. And therefore, it wouldn’t surprise me to see the market just level out here. After all, the market was parabolic for quite some time, and now it has to have a little bit of digestion. Markets cannot go in one direction forever, no matter how hyped people get.
Furthermore, the interest rate differential is actually starting to spread out quite far, and sooner or later, people are going to want to collect that interest, especially in an environment where the economic and market situation around the world is so jittery. Why risk or test your luck in a market that is all over the place when you can get a whopping return on just parking cash into treasuries.
We are starting to see US treasuries catch a bid and that helps the US dollar as there had been so many pulled out of the country, dollars are starting, I suspect, to flow back into America. Does that mean the trend changes here? No, not necessarily, but it does mean that we got way ahead of ourselves.
Ready to trade our daily Forex analysis? We’ve made a list of the best forex demo accounts worth trading with.