EURUSD - 28/03/2022 - With turmoil at Europe’s doorstep the EURUSD continues downwards towards a stronger dollar.
The slow economic recovery in Europe is stopping the ECB from tightening monetary policy.
This on top of risk adverse markets has me on the sells.
“hawkish Fed rhetoric, and the knock-on move higher in US Treasury bond yields, continue to apply downward pressure on EURUSD” - an apt assessment and along with USD safe haven status leads me to believe the dollar may pump across the board.
Euro Zone inflation data this week will continue to keep the pressure on - “German headline inflation is expected to rise to 6.1% next week, from 5.1% in February, a level that was last seen in the early 1990s.”
All in all I’m still on the sells and we may drop further now we’re under 1.10.
There’s always a chance the markets could change as we’re in risky times though the majority of the risk is upon Europe’s shoulders.
All eyes on German inflation data.
What do you guys think? Do you see any upwards movement?
The pair appears oversold but may be further to go to hit main support.
ECB was positive on EUR this week but any gains from news was short lived.
Fedspeak propped the dollar up with “St Louis Fed President James Bullard argued on Thursday that they would need to lift the policy rate toward 3.5% this year to tame inflation.”
“Atlanta Fed President Raphael Bostic and Chicago Fed President Charles Evans both reiterated that it would be appropriate to move the policy to a neutral level by the end of the year.”
1.08-1.075 looks like a strong place of support on the downtrend line but could obviously hold here.
Once support is established I’d look for a retrace and for longs up to upper downtrend lines.
1.12-1.115 looks like a strong place for resistance into the week after next.
All in all Monday I will be looking for resistance and then eying longs with overall downtrend in mind, can’t see a plunge (established) below 1.075 unless ECB interest rate decision on Wednesday is a shocker.
Things to look out for:
- First round of the French presidential election. - ECB will deliver their interest rate decision which is not expected to reveal a surprise rate hike. (Wednesday)
Where do you think we’re going? Are we going through support or following the pattern?
Can see us hitting consolidation or a drop unless we hit a curve ball. Volatility and volume are up.
Currently at the 1.05 and looks like we’ve settled bellow lower trend line but sideways movement through the trend wouldn’t make me bullish.
For me a break and settle above 1.06 would make me bullish bit more likely to go sideways to hit 1.06 or a drop through 1.04.
Fundamental points going forward:
- “Comments from European Central Bank (ECB) officials failed to help the euro on Wednesday as the sharp decline witnessed in global equity indexes allowed safe-haven flows to dominate the financial markets.” - “In case the ECB statement suggests that policymakers see the need for successive rate hikes amid inflation fears, the pair could regain its traction. “ - “Risk perception should remain the primary driver of the pair's action. The US economic docket will feature the weekly Initial Jobless Claims and the Federal Reserve Bank of Philadelphia's Manufacturing Survey. Unless these data trigger a rebound in US stocks, the greenback should manage to preserve its strength.”
ECB speech of Friday is one to watch, can’t see any call for upside.
“Overheating inflation and slowing economic growth are still the main market drivers.” For me I’m still feeling bearish, not much has changed in my outlook of the pair long term.
So I’m going to discuss some macro sentiments I have:
- High inflation: EUR at 7% and USD at 8%. Last time we saw rates like this was before the last financial crisis and we’re currently surpassed that. We’re looking at numbers we haven’t seen since the 80’s. - Energy crisis: Europe to faze out RUS oil by end of year and other forms of energy in general. Already problems before the Ukraine invasion. - Stock market: S&P 500 is running above average. Most stocks are probably overvalued. A lot of retail money has come in over the last few years, lots of leverage. - House prices: To high compared to wages. This is still rattling through my head. 2 years pent up sales from the pandemic is obvious but we’ve been going in this direction for a while. I can only talk about where I live but in the uk people with 5% mortgages and “help to buy” new builds that were sold at higher prices might feel the squeeze as the economy tightens. - Low wages: Self explanatory, look at any chart. My local town, pub, restaurant, nightclub… these places should be packed after two years of lockdown but no one is out, everyone is worried about money. - Low unemployment rate: A low unemployment rate isn’t necessarily a good thing. Usually means people are feeling the pinch and scrambling. We’ve seen this before other recessions.
All in all you can probably see where I’m going with this… “Big ba-da boom.” For me the EUR will take the hardest punches due slow economic recovery, war in Ukraine and energy crisis though the U.S. may sneeze first.
What do you guys think? Am I too doom and gloom? :)
The euro has done well to stand up against the dollar with particularly after weak eurozone PMI figures though not sure how long it can hold.
Technically the pair is looking quite neutral but lots of incoming fundamentals on their way to put pressure on the pair.
Quick bearish rundown:
- “Danske Bank forecast the EUR/USD pair at 1.04 in a one-month perspective, at 1.03 in three months and at 1.00 in a year.” - “Rabobank continue to see the risk of a dip back to the year’s low at the 1.0350 region on a one to three-month view. They revised lower their 12-month forecast to 1.08 from 1.10.” - General talks about recession, seeing USD as safe haven. - “S&P cut the EU’s economic growth forecasts to 2.6% for this year.” - “government bond yields advance, underpinning the American currency.”
Overall thoughts; I’m watching the 1.04 res closely. It’s been tested a couple of times now though I feel like it’s not a sign of reversal but a sign that the pair wants to go further.
We still have the upper downtrend line to meet and test at 1.06, a break above will see us testing 1.065-1.07 area with SLs at 1.08-1.085 hopefully safe.
I think for any sign of reversal the pair would have to consolidate out of the downtrend but this scenario looks unlikely.
What are your thoughts on the pair? Are the sellers still safe? :)
We may see sub-dollar euro soon that we haven’t seen since the early 2000s.
I’m looking at a retrace to find resistance on Monday then pilling on more shorts.
Think we might see a nice sell zone around 1.04.
Looking at Thursday when the ECB announce monetary measures.
The ECB announcement may be bullish for the moment or priced in which will see us pop up in expectation.
Generally feeling the sells are safe though.
“The ECB has signalled the start of the rate hike cycle and a 25 bps rate hike is fully priced in the markets. The question, however, is whether the central bank commits the size of the rate hike in September or leaves it open.” All eyes ECB :p
We’re back at parity (1.00122 as of writing) and I remain bearish.
Lower highs and lower lows still at play and we haven’t even hit winter yet which will bring the energy crisis into full swing unless Europe is prepared.
High inflation news from US gave us a little upswing on the charts but nothing to push the pair out of its channel.
I’ve got sells in from around 1.02 (top of the downtrend channel) and keeping them in play until a break of the top channel or more likely a push down to newer lows.
Long term I’m actually starting to think a bit more positive for the EUR, reasons:
- EUR setting a windfall tax to subsidise consumption. - I’ve been reading that EUR LNG storage may be at 90% capacity (After winter predictions at 20%). - Ukraine are doing an amazing job at pushing out the invaders, this is going to put Russia on the back foot. - Russia reported gas supply to China is probably decades away to be built.
All in all I see a global recession hitting but the EUR may claw back at times and we may see major volatility that we saw back in 2008.
Anyone feeling there’s going to be upside? Anyone putting in longs? :)
The pair is continuing to move downward through the trend channel with 0.99 looking like a good place for resistance.
I’m still in shorts from parity (1.0) and watching maybe 0.99 for new res, anything above or at parity will make me change bullish but seem unlikely atm.
I would wait for resistance to put in new sells, see how it reacts to the upper downtrend line.
I have take profits set at 0.93-0.92.
Side note: we seem to be squeezing for a big movement.
Points going forward:
- “EUR/USD seen declining to 0.9300 in Q1 2023 – Nordea.” - “Speculation about a shorter Fed hike in December has hit the USD.” - “Europe is facing turmoil as tensions loom with Russia.” - “The Federal Reserve is laying the ground to shrink the size of upcoming interest rate hikes, weighed on the US Dollar.”
All in all I think it could spend another week messing around until 0.99 res hit, I’m keeping a keen eye on the news especially central bank announcements.
Anyone feeling there’s going to be upside? Will the strength in the dollar falter? :)
The dollar is now weakening and we are on the move up.
I’m watching for pullback short term before a further move up an fully looking for further long opportunities.
Reasons for weaker USD?:
- “weaker-than-expected U.S. inflation data” - “Slowing price pressures may lead the Federal Reserve to adopt a less hawkish stance, prompting policymakers to slow the pace of interest rate hikes as soon as their next meeting’ - “The downward correction in yields could push the dollar lower in the near term”
Reasons for stronger EUR?:
- LNG stores at above 90% capacity and a warmer than average winter predicted. - ECB gdp prediction is now higher at 3.1% though 0.9% for 2023 given (recession looming)
My general thoughts: if we hit a global recession what we see in the charts would be akin to what we saw in 2008, large monthly moves ripe for trading trends.
For now I’m waiting for retest of new upward channel bottom then putting in further longs.
Can you see an uptrend forming or are we likely to crab it going into Christmas? :)
HIGH RISK WARNING: Foreign exchange trading carries a high level of risk that may not be suitable for all investors.
Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance.
You could lose some or all of your initial investment. Do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions.
Any data and information is provided 'as is' solely for informational purposes, and is not intended for trading purposes or advice.
Past performance is not indicative of future results.