It’s likely that every time this market rallies, there will be plenty of sellers that are willing to jump in and start shorting.

The Euro has fallen during the trading session on Thursday as we continue to go back and forth, with the 1.05 level being a bit of a magnet for price. When you look at the Euro, it’s not difficult to imagine that we could go lower, because quite frankly there’s no real reason for the US dollar to sell off from a longer-term perspective. Granted, the European Central Bank has recently suggested that maybe they will have to do something to help with inflationary headwinds, but at the same time they have also had an “emergency meeting” to discuss bond rates in Italy.

With all of that noise, it’s not a huge surprise to see this. Going sideways as people try to figure out what the ECB is going to do. We already know that the Federal Reserve is going to tighten monetary policy, so that is part of the reason why the US dollar continues to look attractive. That being said, we also need to look at the global growth situation, and it’s very possible that the economy drops quite drastically, which would work against the value of the Euro as most people will be looking to get their hands on US dollars.

The market continues to be very noisy, and it is worth looking at the double bottom at the 1.04 level as a major level. If we were to break down below that level, then it’s likely that the Euro will drop to the 1.02 level, maybe down to the parity level over the longer term. Alternately, if we were to turn around and take out the 1.08 level to the upside, that could show that the Euro is trying to change the overall trend, and therefore I would have to reevaluate the entire situation. In that scenario, I think the 200 Day EMA would come into the picture.

However, it’s likely that every time this market rallies, there will be plenty of sellers that are willing to jump in and start shorting. As the market continues to fade exhaustion will be something worth paying attention to, and therefore think you will get choppy yet negative price action over the next several weeks. As the session will be on a Friday, it’s going to be interesting to see how it ends up, because it will tell you a lot about how people feel about this currency pair, because what you hold over the weekend says a lot.

I will only add to positions once they prove themselves.

The Australian dollar rallied a bit on Wednesday to form a double-bottom pattern. Ultimately, the market has been hanging around the 0.6850 level. Looking at the start, we could rally significantly, but at this point, I think it’s only a matter of time before we see sellers come back in because this relief rally is probably just that, a relief rally.

Looking at this chart, I think we have a lot of volatility ahead of us, and it’s also possible that we see a bit of a range form. Nonetheless, I think that’s probably the “best-case scenario” for Australia at the moment, as the Australian economy is suffering at the hands of China slowing down again, or perhaps I should say locking itself down, and potential concern when it comes to the demand for certain commodities.

The interest rate in America continues to climb, but now that we’ve had a little bit of a relief rally after the Federal Reserve raised to 75 basis points, any knock on effect of positivity is probably short-lived, and we will start to focus on the diversions of interest rates again. Inflation continues to run hot in the United States, and that is going to be a major problem. Granted, Australia does have a lot of a correlation between its currency and gold, but that is probably going to go by the wayside given enough time.

Look at this chart, if we were to break down below the recent low, that would be a very ugly turn of events. At that point, we go looking to the 0.68 level, and then perhaps open up a move down to the 0.66 level. On the upside, the 0.7250 level being broken could open up the possibility of the 0.75 level being targeted. The only thing I think you can count on in the Forex market right now is the fact that there is going to be a lot of volatility, so you need to keep your position size reasonable and recognizes that we are in a very unsettled environment as so much concern is found around the world when it comes to growth, inflation, and the recessions that are almost certainly coming down the road. I will only add to positions once they prove themselves.

I think that as long as we stay above the support underneath, value hunters will continue to push the market.

The S&P 500 initially pulled back in the futures market on Monday, only to turn around to reach the upside. The 4500 level underneath continues to be an area of interest, as it has been both support and resistance previously. We now look as if we are threatening the previous double top that sits at the 4585 level, which will be the last vestiges of resistance.

If we were to break above the double top at that level, it would have this market breaking to the upside, perhaps reaching all-time highs. Iif the bears cannot protect that area, it will come down to fundamental noise, which would have a long way to go in pushing this market back down. At this point, the Russians are even starting to soften their stance on demands for peace in Ukraine, so that could be yet another reason to think that things are turning around for a bigger move.

Regardless, even if we do continue to see upward mobility, the reality is that we are a bit stretched at this point, so it makes a certain amount of sense that we would get a little bit of a pullback. Underneath, near the 4450 area, there does seem to be a significant amount of support, not only based upon the previous several sessions but the fact that we have the 50-day EMA sitting there, as well as the uptrend line.

There is no such thing as an easy trade at this point, because the markets have been running on pure emotion for several weeks. Now that we have all but wiped out the concerns of the war in Ukraine stretching out across the border into other parts of Europe, we start to focus on the idea of economics. It appears that Wall Street no longer believes that the Federal Reserve has the guts to tighten the economy, but the Federal Reserve still maintains that it does. In this scenario, somebody’s going to lose, but right now it looks like the momentum is most decidedly to the upside. However, you should keep in mind that momentum seems to be a fickle thing and will continue to be a major issue at times. I think that as long as we stay above the support underneath, value hunters will continue to push the market.

The next few months are going to be very difficult and very noisy, and as a result, it looks likely that the markets will need to be treated with extreme caution. 

The S&P 500 initially fell on Friday and looked as if it was going to struggle for a bit, only to save itself at the end of the session. This is quite typical as institutions come in late in the day and pick up stocks. That being said, the market is more likely than not going to face a bit of resistance between here and the small double top that sits at the 4585 handle. The area should be difficult, but it is going to be interesting to see whether or not we can break above there. If we do, then all of the negativity is suddenly gone.

What is interesting is that bond yields continue to race higher, as the bond market does not seem to be as excited about the prospect of the Federal Reserve backing down like Wall Street is. Most Wall Street pundits think that the Federal Reserve will not dare raise interest rates in this inflationary environment, but Jerome Powell may have no choice. If that is the case, it will absolutely crush the stock market, especially if he has to do it rapidly in an environment that is very dangerous.

On the other hand, if Jerome Powell sides with the institutional bankers again, then it is very likely that inflation will run hot, and stocks will be bought as an inflation hedge. This would not be conducive to an economy that allows for a lot of profits for companies, but it has been a while since the stock market had anything to do with that. It is more about liquidity at this point, and the more liquidity there is, the higher these markets tend to go.

It is all about monetary flow, and it is likely that it comes down to what the Federal Reserve does. The next few months are going to be very difficult and very noisy, and as a result, it looks likely that the markets will need to be treated with extreme caution. The consolidation just underneath should be supportive, but if we were to break down below there, the 4450 handle will be the gateway to lower prices. Ultimately, this is a market that I think will find its way higher in the short term, but it is only going to take just a little bit of negativity to turn things around.