The noisy behavior more likely than not will continue throughout the rest of summer.

The US dollar dropped a bit on Friday as we continue to consolidate overall. The 1.39 level has offered a bit of resistance, and the 1.3850 level has offered support. This is a market that is trying to break out of the higher levels, and it will be interesting to see whether or not the greenback can continue to go higher. Ultimately, this is a market that will continue to find buyers on dips from everything I see, but we are starting to see the US dollar soften a bit from the extreme overbought condition that it had been in overall.

The 50-day EMA sits just below the 1.38 handle and is rising. I think this continues to be an area that people will be paying close attention to and could offer a certain amount of dynamic support. This is an area that has attracted a lot of attention a couple of times, it looks like the 1.40 level above is a massive barrier that is going to take some time to get above. If we can get above the 1.40 handle, then it’s likely that the market could go much higher. We had pulled back to the 61.8% and then bounced again. Because of this, one would have to think that eventually, we will continue to go higher, and the interest rate situation in America certainly does suggest that the US dollar should continue to rally.

Having said that, if the US dollar were to break down below the 1.3750 level, then it could change things, but right now it seems more likely than not we will have plenty of buyers on dips. The market has been noisy over the last couple of weeks, but that’s just a microcosm of the entire Forex world. I do believe that eventually we will go higher, but the noise is going to be quite drastic. Because of this, you will need to be cautious with your position sizing, recognizing that we will get the occasional irruption in both directions, and also should pay close attention to the 10-year note, because the interest rates in America will have a major influence on the greenback itself. The noisy behavior more likely than not will continue throughout the rest of summer.

Keep in mind that the interest rate differential between the European Union and the United States will continue to drive this pair lower.

The euro went back and forth on Monday as we continue to respect the 1.05 level as support. At this point, the market looks as if it is trying to find some reason to move in one direction or the other and simply has not had it yet. One thing is for sure, there does seem to be a lot of noisy behavior in general.

If we were to break above the 1.06 level, then it is obvious that we would have a little bit of bullish pressure to push this market higher, perhaps opening up the possibility of a move to the 1.08 level. The 1.08 level is a significant area that we had broken through previously. That was massive support before, and it should now offer resistance based on “market memory.” Furthermore, the 50-day EMA is racing towards that area, offering even more in the way of dynamic resistance. If we can break through all of that, I might consider buying on some type of reversal for a longer-term move.

The market breaking down below the 1.05 level could send this market much lower, perhaps grinding down to the 1.03 level. There is a lot of noise between the 1.05 and the 1.03 level, so expected to be more of a grind to the downside more than anything else. I think more likely than not we will see short-term rallies that offer selling opportunities as well, as the US dollar is favored over almost everything in this environment. The candlestick for the day is neutral, just as we had seen during the Friday session. This is a situation where we are killing time more than anything else, so I think it is only a matter of time before we get a longer-term signal.

Keep in mind that the interest rate differential between the European Union and the United States will continue to drive this pair lower, and of course, the differentials in attitudes between the central banks will continue to favor the greenback as well. The European Union has a lot to think about at this point, like the war, inflation, and slowing growth all weigh upon the central bank. On the other hand, the Federal Reserve is sticking with the “fighting the inflation” game plan.

At this point, you need to take a little bit of time to see value appear because it is obvious that we have broken to the upside.

The US dollar rallied a bit on Friday to show signs of strength yet again. However, we gave back a bit of the gains to form a shooting star. The market is at the top of what could be thought of as a bullish flag, so we need to pay close attention. With that being said, I think short-term pullbacks are likely, but they also are likely to attract a lot of attention.

If the market does fall from here, I suspect there is a significant amount of support near the ¥127.50 level, and then again at the €125 level. Ultimately, I think that any pullback will offer value that people are willing to take advantage of as potential “cheap dollars.” The trend has been brutal, so it does make quite a bit of sense that we would see plenty of traders willing to get involved, and to think that we are suddenly going to change is a bit of a stretch.

The Bank of Japan continues to try and force the interest rates below the 0.25% level and is essentially “printing yen.” On the other side of the Pacific Ocean, we have the Federal Reserve looking to tighten monetary policy, so I think that the greenback will continue to strengthen. I have no interest in shorting this market anytime soon, so I look at these potential pullbacks as opportunities. At this point, you need to take a little bit of time to see value appear because it is obvious that we have broken to the upside.

The ¥125 level is an area that I think could be tested on any type of US dollar weakness, but that weakness will be short-lived as we have seen the US dollar strengthen against almost everything. The long-term correlation with the Japanese yen as a safetycurrency has been busted by the Japanese central bank, so now the question is will they have to turn things back around? They have started to complain about how quickly the yen is depreciating, but so far do not seem to be willing to step into the market. They have a choice of either a strengthening currency or low rates. They cannot have both.

Short-term rallies should be nice shorting opportunities going forward.

The German DAX Index fell a bit on Thursday to grind down towards the €13,500 level. The €13,500 level is an area that is important, as we had bounced from there previously. Furthermore, it is somewhat psychologically important, so that needs to be paid attention to as well.

By falling the way we have and then turning around, we have not quite formed a hammer but have formed a candlestick that is very similar. This suggests to me that we might get a little bit of a bounce, but the market still has a significant amount of resistance above that will come into the picture. After all, the 50-day EMA is sitting at the €14,272 level and dropping from here. There is also significant resistance sitting around the €14,250 level at the same time, so I think it is probably only a matter of time before we get sellers in that region.

If we were to break down below the €13,500 level, then the €13,000 level would probably be targeted next, followed by the €12,500 level, where we had bounced from previously. It is also worth noting that the market has been in a nice downtrend channel for a while, so it looks as if we are steadily selling off, not necessarily in some type of panic. The European Central Bank will not be tightening monetary policy anytime soon, but they are starting to suggest that they might sell off some of the assets that they hold on their balance sheet. That is a form of monetary tightening, albeit a minor one. Keep in mind that the global economy also has a major influence on the DAX, as so many of the major components are worldwide exporters.

When you look at this chart, it is easy to see that we have been very choppy, despite the fact that we have been very direct in our negativity. Unless something changes from a macroeconomic outlook, I just do not see how the DAX will recover for anything more than a short-term pop. Short-term rallies should be nice shorting opportunities going forward. The German economy has printed some rather disturbing economic figures as of late, so I think that is also going to continue to weigh upon the DAX, as we have seen over the last several weeks.

I think that the market is going to try to go to the ₹77 level, which is where we had seen a significant pullback previously. 

On Monday, the US dollar initially pulled back a bit against the Indian rupee, but as we have seen time and time again, the US dollar recovered to show signs of life. The US dollar will continue to attract attention as long as we are concerned about global growth and risk appetite. After all, the Indian rupee is pretty far out there on the risk appetite spectrum, while the US dollar is considered to be as close to being risk-free as possible.

Further driving money into the US dollar is the fact that the interest rates in America continue to rise as the bond market selloff. This suggests that we are going to continue to see a lot of money flow into the United States as yields are much more attractive. That being said, we should also pay close attention to the fact that as risk appetite drops, it is a bit of a feedback loop going forward.

Looking at the technical analysis, you can see that the ₹70 level underneath has been interesting for both buyers and sellers. Furthermore, the 50-day EMA is sitting right there as well, so it does suggest that the ₹70 level might end up being a bit of a “floor the market” currently. The short-term pullback should continue to offer buying opportunities, especially as value hunters entered the fray. Ultimately, I think that the market is going to try to go to the ₹77 level, which is where we had seen a significant pullback previously. As you can see on the chart, I have a large figure market, and as you look at the chart you can see just how technical this pair tends to be. What this suggests to me is that if we were to get a daily close above the ₹77 level, we could go looking to reach the ₹78 level. I do not believe that the Bank of India is concerned about a depreciating rupee at the moment, as inflation is a big problem worldwide. Furthermore, the move has been relatively orderly, and that is important to central banks as well. It is the rate of change that gets people concerned and right now the rate of change is not out of control. As long as this is the case, I think you jump in and buy these dips as they occur.