Euro pressure still weighting
Despite the latest developments from the Fed, it is undeniable the Euro area is carrying a tremendous weight on its shoulders that can only get greater, and while a period of uncertainty is very possible, believing in an extended rally would be to look at the situation one-sidedly. QE has just started and the outlook remains bearish, although it will surely get more bumpy as the USD rate hike situation develops. One thing is certain: the Fed will hike rates sooner or later, and the ECB is going to keep pushing the euro down.
The levels are clear. Unless the rally extends to 1.11-1.14, which is a major sell zone, the natural resting support for PA is 1.08-1.04 (a feeble one IMHO). Should this be broken--for this we would perhaps have to wait until CPI figures at the end of the month--we could go all the way down to parity.
Now the real issue here regarding fundamentals is how Euro CPI data will affect price from now on. It is a bit early to be doing this kind of judgement, but weak inflation could signify the ECB's efforts are not enough, and thus a disappointed market could actually try to buy the Euro. This effect could strengthen towards the end of QE, but we are very far from that at the moment. In any case that would be going against the central bank, so unless the USD starts to sink uncontrollably (something the fundamentals don't support at all), or the Fed try to stop USD strength from getting out of hand, selling the rallies should be the safe thing to do.
The levels are clear. Unless the rally extends to 1.11-1.14, which is a major sell zone, the natural resting support for PA is 1.08-1.04 (a feeble one IMHO). Should this be broken--for this we would perhaps have to wait until CPI figures at the end of the month--we could go all the way down to parity.
Now the real issue here regarding fundamentals is how Euro CPI data will affect price from now on. It is a bit early to be doing this kind of judgement, but weak inflation could signify the ECB's efforts are not enough, and thus a disappointed market could actually try to buy the Euro. This effect could strengthen towards the end of QE, but we are very far from that at the moment. In any case that would be going against the central bank, so unless the USD starts to sink uncontrollably (something the fundamentals don't support at all), or the Fed try to stop USD strength from getting out of hand, selling the rallies should be the safe thing to do.
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