Jump to content

EUR/USD Forecast: Euro Hits Pre-COVID Levels, Further Weakness to Come?


Recommended Posts

EUR/USD ANALYSIS

  • Dovish ECB grapples with COVID-19 hesitancy and higher inflation.
  • Growth prospects stifled.
  • Is the U.S. dollar rally just beginning?
  • Room for bearish augmentation.

EURO FUNDAMENTAL BACKDROP

EUR Forecast

EURO AREA FACES GROWING CHALLENGES

The European Central Bank (ECB) have thus far remained the most accommodative of the major central banks and now have added complexity to their task with the recent spread of COVID-19 throughout the Euro area. Persistent high inflation in the continues to plague the region, and is unlikely to soften with cold temperatures projected for the winter months (higher energy demands). The spread of the virus is expected to compound the problem in relation to slower economic growth, sparking the stagflation debate once more. Simply put, rate hikes could help slow inflationary pressure but would come at the cost of a higher cost of borrowing, putting further pressure on households and businesses – limiting economic growth.

Another headwind facing the Euro is the fact that the Pandemic Emergency Purchase Programme (PEPP) which is scheduled to end in March of 2022 is set to be unaffected by virus which does not bode well for the economy should the situation get worse.

Germany’s Ifo Business Climate (NOV) release and the GfK Consumer Confidence (DEC) acts as a barometer for the Euro area and with both events missing, indicates the weary outlook by market participants.

GERMANY ECONOMIC CALENDAR:

Ifo business climate GfK consumer confidence

Source: DailyFX Economic Calendar

Later today (see calendar below), ECB minutes will be released from the November meeting. Investors will be closely scrutinizing details around asset purchases and rate hikes.

ECB minutes

Source: DailyFX Economic Calendar

IS THE DOLLAR RALLY FADING?

This week has been all about the U.S. dollar with markets focusing in on selected economic data to push the greenback higher. Yesterday, the initial jobless claims print overshadowed other data misses while the FOMC minutes provided additional bullish fervor as the Fed’s willingness to hasten the QE taper should the need arise. Although the minutes are somewhat lagged, the message has been received by markets post-release with the dollar ticking higher however, the dollar gapped lower this morning as markets may have been overexuberant on the back of yesterdays announcements. High-spirited dollar bulls may be disappointed short-term as I think there may be a slight correction but the fundamental picture in Europe against the U.S. is distinctly divergent. Ceteris paribus, the difference between EUR and USD fundamentals should see long-term gains for the greenback against the Euro. This year alone the Euro is roughly 8.3% down on the dollar making it the 3rd worst performing G10 currency.

FX rates vs USD YTD

Source: Reuters

The U.S. dollar gained further ground on the Euro yesterday after Fed Chair Jerome Powell was reelected. Markets consider Powell the “hawkish” choice but in reality he is far from a hawk. I believe the dollar rally will correct itself short-term. Later today, U.S. PMI data (see calendar above) could swing momentum back in favor of EUR/USD bears – data dependent.

EUR/USD TECHNICAL ANALYSIS

EUR/USD WEEKLY CHART:

EUR/USD weekly chart

Chart prepared by Warren Venketas, IG

The broader picture shows EUR/USD trading within a triangle formation (symmetrical) – pattern that favors neither bulls nor bears. The symmetrical triangle traditionally gives markets an insight to a directional bias once a breakout occurs. In this case, a break below triangle support has greater credibility at this point. The weekly chart above also shows the potential for further downside towards the 1.1000 psychological level. By year end it will not be surprising if this level is being brought into consideration.

EUR/USD DAILY CHART:

EUR/USD daily chart

Chart prepared by Warren Venketas, IG

EUR bulls have managed to claw back some lost ground, finding support slightly ahead of swing support at 1.1168 (June 2020). Downside price action has moved relatively far from the 20-day EMA (purple) which could suggest mean reversion short-term. Current levels may also reflect profit taking for bears and could resume the downtrend once more attractive short levels become apparent.

The Relative Strength Index (RSI) has been lingering in oversold territory since last week and may add extra support for the correction narrative mentioned above.

Resistance levels:

  • 1.1524
  • 20-day EMA (purple)
  • 1.1300

Support levels:

  • 1.1168 – June 2020 support level
  • 1.1100

IG CLIENT SENTIMENT DATA PROPOSES SHORT-TERM HESITANCY

IGCS shows retail traders are currently distinctly long on EUR/USD, with 72.36% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment and the fact traders are net-long is suggestive of a bearish inclination however, the recent net changes in longs and shorts point to a mixed disposition.

 

By Warren Venketas, , 25th November 2021. DailyFX

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • ASX: LIGHT & WONDER INC. – LNW Elliott Elliott Wave Technical Analysis TradingLounge (1D Chart)   Greetings, Our Elliott Wave analysis today updates the Australian Stock Exchange (ASX) with LIGHT & WONDER INC. - LNW. We determine that LNW is developing under wave ((ii))-green and may end soon, and is ready to allow wave ((iii))-green to return to push higher.     ASX: LIGHT & WONDER INC. - LNW  Elliott Wave Technical Analysis   ASX: LIGHT & WONDER INC. - LNW  1D Chart (Semilog Scale) Analysis Function: Major trend (Minor degree, red) Mode: Motive Structure: Impulse Position: Wave iii-blue of Wave (iii)-purple of Wave ((iii))-green Details: The short-term outlook shows that wave ((ii))-green has extended longer than expected, developing into a Double Zigzag. Wave (x)-purple has just completed, and wave (y)-purple is unfolding to continue pushing lower. Invalidation point: 136.07   ASX: LIGHT & WONDER INC. - LNW  Elliott Wave Technical Analysis TradingLounge (4-Hour Chart) ASX: LIGHT & WONDER INC. - LNW  Elliott Wave Technical Analysis ASX: LIGHT & WONDER INC. - LNW  4-Hour Chart Analysis Function: Major trend (Minute degree, green)   Mode: Motive   Structure: Impulse   Position: Wave b-blue of Wave (y)-purple of Wave ((ii))-green   Details: The shorter-term outlook suggests that wave (y)-purple is currently unfolding, subdividing into waves a, b, c-blue, with wave a-blue having just completed. Now is the time for wave b-blue to unfold, pushing slightly higher before wave c-blue returns to push lower. This sequence would complete wave ((ii))-green, allowing wave ((iii))-green to resume and push higher. Invalidation point: 162.00   Conclusion:   Our analysis, forecast of contextual trends, and short-term outlook for ASX: LIGHT & WONDER INC. - LNW aim to provide readers with insights into the current market trends and how to capitalize on them effectively. We offer specific price points that act as validation or invalidation signals for our wave count, enhancing the confidence in our perspective. By combining these factors, we strive to offer readers the most objective and professional perspective on market trends.   Technical Analyst: Hua (Shane) Cuong, CEWA-M (Master’s Designation). Source : Tradinglounge.com get trial here!  
    • Just updated settings for currency conversion from instant to manual. I understand, from now on, I pay commission of 2 cents per share with a minimum charge of $10 on US stocks while on instant it was $0. But, the real question is: - how do i transfer my AUD in my bank to USD on IG. Is bank transfer option (With the acct/swift code from IG) the only option? - what happens when US stock gives divided? does it get transferred to AUD or will it remain somewhere (dont know where) on IG in USD itself?  - what happens when I sell USD stocks? same as above, where do i manually transfer it back to AUD?   Cheers
    • There has been a significant uptick in activity from institutional investors, or "whales," in the meme-inspired cryptocurrency Dogecoin (DOGE). Recent data shows the value of large transactions has almost quadrupled in the past day. According to statistics from IntoTheBlock, transactions over $100,000 have soared in value over the last 24 hours, jumping from $1.53 billion to nearly $3.01 billion. Simultaneously, the amount of DOGE moved by these whales increased from 9.74 billion to 17.97 billion, indicating a substantial rise in investor activity within the Dogecoin ecosystem. This dramatic increase in whale transactions coincides with growing speculation within the crypto community about the possibility of a Dogecoin ETF being approved. Excitement surrounding the prospect of an Ethereum ETF has led to speculation that DOGE might be the next cryptocurrency to get its own ETF. Amid this speculation, a prominent crypto enthusiast named Vee posted on X, suggesting that Dogecoin would be perfect for an ETF due to its broad acceptance and non-security status. In a post highlighting the potential pros and cons, Vee underscored the double-edged nature of traditional financial institutions' interest in Dogecoin. Billy Markus, one of the coin's co-creators, humorously remarked that a Dogecoin ETF would be "amusing," a sentiment that fits DOGE's playful origins but doesn't detract from the serious investment opportunities current market trends present. Dogecoin value has risen by 11.2% over the last week, reflecting the overall upward trend in the cryptocurrency market. Although DOGE has seen a slight 0.7% increase in the last day, it is now trading at $0.168.
×
×
  • Create New...
us