Is Shorting the Euro the Current FX Trend?
Key Highlights:
- Euro Pressure: Recent statements by hawkish figures increase downward pressure.
- Rate Differentials: Analysis indicates alignment with short-term rate differentials.
- Caution in Predictions: Reluctance to call the bottom, especially in EUR-crosses
n the dynamic world of foreign exchange, shorting the euro has emerged as a prevailing strategy. Recent remarks by hawkish hardliners, notably Isabel Schnabel, have shifted the narrative from potential rate hikes to discussions about rate cuts. This has intensified the downward pressure on the euro.
Examining EUR/USD Correction and Rate Differentials
Our analysis focuses on the ongoing correction in EUR/USD, aligning with short-term rate differentials. The two-year swap rate gap, standing at -130bp, serves as a key driver. Anticipating a further descent to the 1.06 area, we find this move to be within the realm of possibility, not an aberration.
Reluctance to Call the Bottom
Despite these trends, we exercise caution in predicting the bottom for EUR/USD. This hesitancy extends to EUR-crosses, particularly against robust currencies like AUD and NZD. The absence of a visible catalyst for a distinctive euro rebound, coupled with a lack of scheduled European Central Bank speakers today, leaves us reluctant to foresee an immediate reversal.
In conclusion, the euro's current trajectory suggests caution in long-term predictions. Traders should closely monitor evolving trends and be prepared for potential shifts in the forex landscape.
Technical Market Outlook:
The EUR/USD pair has tested the technical support located at the level of 1.0756 and the bulls are trying to bounce. Any violation of this level would push the price towards the next technical support seen at the level of 1.0748 which is a part of the H4 demand zone located between the levels of 1.0770 - 1.0746. The upside is limited as the nearest technical resistance is seen at the level of 1.0805. Despite the extremely oversold market conditions, the momentum remains weak and negative on the H4 time frame chart as the bears are in charge of the market for now. Only a sustained breakout back above the level of 1.0966 would change the outlook to more bullish.
Weekly Pivot Points:
Pivot Points are key price levels used in technical analysis to identify potential trend reversals, support, and resistance levels in financial markets.
WR3 - 1.1179
WR2 - 1.1098
WR1 - 1.0991
Weekly Pivot - 1.0910
WS1 - 1.0803
WS2 - 1.0722
WS3 - 1.0615
Trading Outlook:
The EUR/USD pair broken out above the 61% Fibonacci retracement of the recent weekly downtrend, positioned at 1.0963. The market then reversed sharply, so in order to continue the up move a weekly close above this level is needed. The breakout would serve as the initial signal for a potential long-term trend reversal in favor of the Euro.
On the H1 time frame chart:
- 16 out of 22 technical indicators are showing Strong Sell signal, 6 indicators are Neutral and 1 shows a Buy signal
-18 out of 18 moving averages are showing Strong Sell signal
Sentiment Scoreboard:
The general sentiment on the scoreboard is bullish (62% vs.38% bears). Last week sentiment remains bullish as well (57% bulls vs.43% bears) while the last three days sentiment is bullish as well (52% bulls vs.48% bears).
Useful links:
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Important:
The begginers in forex trading need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp market fluctuations due to increased volatility. If you decide to trade during the news release, then always place stop orders to minimize losses.
Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. For successful trading, you need to have a clear trading plan and stay focues and disciplined. Spontaneous trading decision based on the current market situation is an inherently losing strategy for a scalper or daytrader.
