Euro Continues to Threaten to Break Down

The Euro initially tried to rally a bit during the trading session on Tuesday but gave back gains rather quickly to show an attempt to break down below the bottom. That being said, it looks as if the market is threatening a major breakdown, perhaps a move down to the 1.10 level. This makes quite a bit of sense considering that Europe is very vulnerable right now, not only due to the war in Ukraine but also the fact that the Russians could shut off energy at any moment, which would cripple the European economy.

EUR/USD Video 02.03.22

Beyond that, interest rates favor the Americans anyway, so longer-term it does make more sense that we drop from here. Rallies at this point in time continue to be selling opportunities, as the US dollar has been strengthening against most currencies. Europe also has lackluster growth going, so that, of course, is going to be another thing that makes the Euro less attractive. Interest rate differential will continue to spread between Germany and the United States, which has been a major driver of this currency pair for a while.

Even if we do rally from here, the 50 day EMA sloping lower should continue to offer a bit of dynamic resistance, and therefore I think that there will be plenty of people looking to short this market as we go forward. In fact, it is probably not until we get peace in Ukraine that the Euro can make a serious attempt to recover for the longer term. I certainly look very tenuous for the Euro going forward.

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