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EUR/USD Beneath Strain amid German Lockdown Fears, Robust US Greenback


EUR/USD Evaluation:

  • Eurozone fundamentals worsen whereas USD advantages from EM risk-off rotation
  • No finish in sight for EUR/USD downtrend, though gentle anticipated buying and selling over Thanksgiving might present a slight reprieve
  • IG Consumer Sentiment ‘combined’ regardless of a sizeable 72% of merchants net-long

Eurozone Fundamentals Deteriorate

The image is wanting more and more worse for the Euro this week as German neighbors, Austria begins a 20 day lockdown. After assessing the scenario, German well being officers have been unable to ensure that Europe’s largest financial system will keep away from related measures in an try and stem the latest spike in new Covid-19 infections.

New Covid-19 Instances (Germany)

germany new active cases.

Supply: Refinitiv

Euro weak spot has been the theme for a lot of the yr however it’s maybe in opposition to the US greenback that it will proceed to be felt probably the most. ECB President Christine Lagarde has maintained, at nice size, a supportive and accommodative tone regardless of inflation reaching 4.2% (YoY) in October.

In distinction, The US is coming off better-than-expected retail gross sales knowledge and crimson sizzling inflation, including strain to the tapering timeline and charge hike expectations. Simply final week, Fed Vice-Chair Richard Clarida mentioned that the tapering timeline warrants dialogue at December’s Fed assembly which continues to help the latest power of the greenback. Final week’s charge minimize by the Turkish Central Financial institution kickstarted a transfer away from EM currencies (USD/ZAR, USD/TRY and USD/MXN) in the direction of conventional protected haven performs (USD, CHF, JPY).

In essence: Covid resurgence, EU progress issues and the risk-off forex rotation performs into the {dollars} palms on the expense of the Euro.

Key Technical Ranges and Chart Evaluation (EUR/USD)

As talked about earlier than, the broader theme of Euro weak spot, coupled with greenback power, could be seen on the weekly EUR/USD chart because the pair has traded decrease for many of 2021. After final week’s decline, the pair now trades beneath the 1.1400 key stage which has been the supply of a number of inflections up to now (notably 2015-2016 but additionally 2020). Buying and selling beneath this stage subsequently, leaves the door open for additional declines.

EUR/USD Weekly Chart

Weekly EUR/USD chart

Chart ready by Richard Snow, IG

The each day chart helps to border newer worth motion as there was an try and push up in the direction of the world of confluence (purple rectangle) on the intersection of the 1.1400 stage and trendline help. Help, after Friday’s robust rejection of upper costs, is available in at 1.1168.

On the identical time, the aggressive promoting over the past two weeks might end in exhaustion whereby the pair trades in the direction of resistance at 1.1350. Such a transfer might immediate Euro bears as soon as extra as they search to ‘promote the rally’.

EUR/USD Day by day Chart

Daily EUR/USD chart

Chart ready by Richard Snow, IG

Consumer Sentiment ‘Blended’ Regardless of Heavy Lengthy Positioning

The sentiment overlay on the EUR/USD chart could be very telling however solely tells half of the story. Greater than 72% of IG EUR/USD merchants are net-long regardless of the deep downtrend however latest modifications in positioning muddies the waters.

EURUSD sentiment

The variety of merchants net-long is 7.62% larger than yesterday and 0.43% larger from final week, whereas the variety of merchants net-short is 15.97% larger than yesterday and 4.65% decrease from final week.

We sometimes take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests EUR/USD costs might proceed to fall.

Positioning is much less net-long than yesterday however extra net-long from final week. The mix of present sentiment and up to date modifications offers us an additional combined EUR/USD studying.

US Heavy Knowledge Prints Await

Constructive manufacturing knowledge is predicted out of the US this week with the headline gadgets being the PCE knowledge and FOMC assembly minutes from the November 3rd assembly when tapering was agreed to. We finish off the week with ECB Financial Coverage Assembly Accounts

Economic calendar DailyFX

For all market-moving knowledge releases and occasions see the DailyFX Financial Calendar

— Written by Richard Snow for

Contact and observe Richard on Twitter: @RichardSnowFX

DailyFX offers foreign exchange information and technical evaluation on the developments that affect the worldwide forex markets.

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