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EUR/USD: Isn't it time for the dollar to take a break?

EUR/USD, currency, EUR/USD: Isn\'t it time for the dollar to take a break?

FOREX Fundamental analysis for September 27, 2022

It is known that currency trading on the forex market is similar to swinging. Assets climb higher and higher, only to rapidly descend afterwards.

The trade-weighted dollar rate, calculated by the Fed over the last year rose by 22% and reached a new record high.

But as the historical calculations show, the index was down 7.7% and 6.7% for two months in 2009 and 2015, after rising over 20%. Are we headed down the mountain again anytime soon?

Net longs on the dollar as of September 20 are $10.23 billion, almost half the value of July's high of $20 billion. Nevertheless, forex hedge funds have been holding bullish trades for 62 weeks. The BofA calls the greenback purchase "the most crowded trade," although analysts at investment firm Bailard predict a 10-15% rebound in the dollar against the euro and yen in the very near future.

Other experts are less determined. Indeed, most of the "bearish" factors have already been taken into account by EUR/USD quotations, which gives grounds for an upward correction, but the fundamental background is still negative towards EUR and favors the dollar. Though ECB decided to keep up with the Fed and raised the rate by 75 basis points, the pace of monetary restriction is incomparable. In addition, the Fed is reducing its balance sheet by $95 billion a month, which the European regulator cannot afford. Christine Lagarde thinks QT can be launched only after rates reach a neutral level.

Also pressure on EUR/USD is supported by the difference in economic growth rates. The war in Ukraine, which according to the World Bank will cost the global economy $2.8 trillion, still hurts the Eurozone more than the United States. If the Russian invasion continues, gas prices could rise another 30-50%, sending the Eurozone economy into recession.

In addition to the above factors, EUR/USD sellers are supported by investors' rejection of risky assets.

Sellers' fixation of short positions might provoke a pullback with a possible recovery to the parity level. Nevertheless, the downtrend remains in force. The pair might continue falling first to 0.95 and then to 0.92, so we continue to sell on the rise.

 

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USD/JPY: Yen cannot resist the dollar
USD/JPY, currency, USD/JPY: Yen cannot resist the dollar Trading idea for USD/JPY on September 27USD/JPY maintains its uptrend and is testing the upside resistance at 149.00 on Wednesday. The pair is updating the October 2022 highs on the back of a stronger dollar.Despite the fact that the Fed decided not to raise the rate in September, the regulator made it clear that until inflation reaches the target level of 2%, the "hawkish" course of monetary policy will be maintained. Moreover, the majority of the members of the Federal Open Market Committee (FOMC) adhere to this position. In particular, the head of FRB Minneapolis Neel Kashkari notes the stability of the national economy and considers it necessary to hold another rate hike of 25 basis points this year. Head of FRB Chicago Austan Goolsbee calls inflation the most serious problem for the Fed.At the same time, the Bank of Japan maintains a soft monetary policy stance, ignoring rising inflation. The fact that negative interest rates will be maintained was announced last week by the head of the regulator Kazuo Ueda. At the same time, he did not rule out the possibility of currency intervention in case of further weakening of the yen.Earlier analysts predicted that the Bank of Japan will intervene in forex trading once USD/JPY reaches 145.00. Now they consider the 150.00 level as a new boundary.As long as USD/JPY has not reached the critical mark, the growth will continue. In this regard, we propose to place a buy order on USD/JPYBuy-limit 148.50 take-profit 150.50 stop-loss 147.80
Sep 27, 2023 Read
EUR/USD: the pair is heading towards 1.051
EUR/USD, currency, EUR/USD: the pair is heading towards 1.051 FOREX Fundamental Analysis for EUR/USD on September 27The Fed is facing a rather difficult task - fighting inflation without the economy going into recession. Now the introduction is made a bit more complicated by the risk of a government shutdown. Based on historical calculations, all this does is delay the release of important reports, such as labor market statistics or inflation data. And making decisions without proper justification is quite difficult and not always the right thing to do. But, as usual, any uncertainty in forex trading increases the demand for the US dollar.Besides, if the US lawmakers fail to solve the budget issue by October 1, some federal employees will go on forced vacations, and 4.5 million people risk to remain without salaries, which will hit the consumer demand and, consequently, the GDP of the United States.In the medium term, the artificial recession will increase the risks of recession, especially since the resumption of student loan payments and the act of monetary restraint from the Fed are ahead. Moreover, strikes of workers in the automotive industry and rising oil prices do not contribute to economic growth, but they can increase the risks of inflation. All the more so because the signals of slowdown continue to come from time to time. For example, the consumer confidence index in September fell to a 4-month low.Moody`s has already made it clear that the US will lose its top credit rating in a government shutdown. After a similar August decision by Fitch, investors began to actively withdraw capital from treasures, which caused bond yields to rise and the dollar to strengthen. So, in this scenario, EUR/USD sales will only intensify.FOMC officials also contribute to the strengthening of the greenback periodically stating the need to continue the "hawkish" course of monetary policy. The Fed leadership is trying to convince investors that even if the tightening cycle is over, the rates will remain at 5.5% for quite a long time. With such a backdrop, the demand for risks will not grow.The first of October is approaching, and with it the tension about the government shutdown is growing. There are no reasons to buy EUR/USD. The pair is steadily declining to the targets of 1.051 and 1.042. Let's keep selling.
Sep 27, 2023 Read
EUR/USD: pressure on the European currency is increasing
EUR/USD, currency, EUR/USD: pressure on the European currency is increasing EUR/USD trading ideaDespite the local revival of buyers, EUR/USD remains in a downtrend and at the moment trades near the strong level of 1.0600.The dollar is strengthening its position in the currency market. It is supported by expectations of another Fed rate hike, as well as macroeconomic statistics. The dollar index is approaching the level of 106.00 - the maximum of November last year.The yield on 10-year U.S. debt bonds reached 4.55%, the highest level since 2007.On Thursday, Jerome Powell will speak and the revised estimate of the US second quarter GDP will be released. In addition, investors' attention is focused on the problems of the public debt of the United States. American lawmakers can not reach a consensus on the issue of reducing expenditures, and if by October 1 consensus is not found, the suspension of government activity is possible. In such a scenario, the demand for the dollar as a protective asset will grow.The day before, Christine Lagarde spoke at the Committee on Economic and Monetary Affairs of the European Parliament. The head of the ECB expressed concern about the high level of inflation, but noted the stability of the labor market. Christine Lagarde considers the rate of the European Central Bank sufficient for inflation to fall to the target of 2%. Investors realize that the ECB has ended the cycle of tightening financial conditions, which is a bad signal for the euro.Taking into account the fundamental background, macroeconomic statistics, technical analysis and readings of the main Forex indicators, we believe that the pair's decline will continue and we suggest placing a sell order for EUR/USDSell-stop 1.0570 take-profit 1.0400 top-loss 1.0630
Sep 26, 2023 Read
Forex analysis and forecast for USD/JPY for today, September 25
USD/JPY, currency, Forex analysis and forecast for USD/JPY for today, September 25 With the start of weekly trading, USD/JPY has not increased activity and is still trading around 148.50.The dollar's positions are still strong, although on Friday mixed business activity indices were released. In the industrial sector for September the index rose from 47.9 to 48.9 pp while in the service sector it fell from 50.5 to 50.2 pp.The Bank of Japan's meeting at the end of last week did not change the regulator's monetary policy course. The rate remained unchanged at (-0.1%), although Kazuo Ueda noted uncertainty over the timing of inflation reaching the 2% target.Japan's consumer price index declined to 3.2% from 3.3% in August, core inflation remained at 4.3%. In the manufacturing sector, the business activity index for September fell from 49.6 pp to 48.6 pp.Technical Analysis for USD/JPYOn the chart of the day, the Bollinger Bands Indicator is reorganizing into a horizontal flat, although the MACD indicator is still targeting upward and holding a buy signal. The Stochastic oscillator from top to bottom has broken through the 80% level, exited the overbought area and is developing a decline.If the oscillator consolidates above the key level of 148.50, we continue to buy with the target mark of 150.00. Stop-loss is taken out at 147.80.In case of rebound from 148.50 we wait for consolidation below the support at 148.00 and only after that we form short positions in the direction of 146.62. Stop-loss is set at 148.75.
Sep 25, 2023 Read
EUR/USD: US economy may lose its exclusivity
EUR/USD, currency, EUR/USD: US economy may lose its exclusivity FOREX Fundamental Analysis for EUR/USD on September 25The Eurozone is losing to the United States on all fronts. While the Fed can afford to continue the rate hike cycle, for the ECB each act of monetary restriction causes tangible damage to the Euro bloc economy.Eurozone business activity leaves much to be desired. In September, the composite index failed to rise above the critical level of 50 p. If we take the situation of the Eurozone countries, many of them are worse off than the UK, not to mention Japan, and even more so, the US. Under such conditions EUR/USD is unlikely to return to growth.The United States economy coped with the aggressive tightening of financial conditions from the Fed. But will the dollar be able to overcome new obstacles? Is it rising oil prices, risks of a US government shutdown, strikes in the auto industry and student loan payments? According to Goldman Sachs, these four factors could slow fourth-quarter GDP from 3.1% to 1.3%. And Daco is talking about 0.6%.If the scenario starts to play out, the United States will lose its exclusivity and EUR/USD could return to recovery, provided that things do not get worse in the Eurozone itself again.Perhaps China will help the Old World? Beijing intends to reach 5% GDP growth. This would be good, but the Eurozone itself will have to try harder. First of all, the ECB should abandon monetary restriction. It is possible that the September inflation report will be the basis for this step, as Bloomberg expects CPI to fall from 5.2% to 4.6%. It would seem that the "dovish" rhetoric should hurt the euro. In fact, investors are currently concerned about the Eurozone economy much more than inflation.I believe that many negative factors are already taken into account in EUR/USD quotes. The pair has been falling for 10 weeks in a row and it is time for an upward correction. However, catching "falling knives" is not the best method of forex trading. We will consider buying when the price fixes above 1.067. It is quite risky to open longs now without any signs of reversal.
Sep 25, 2023 Read
EUR/USD: ECB helped the euro to find a bottom
EUR/USD, currency, EUR/USD: ECB helped the euro to find a bottom FOREX Fundamental Analysis for EUR/USD on September 22Everything is changing in forex currency trading. Rising interest rates no longer lead to the rot of the monetary asset. Investors are more interested in how long rates will remain at their maximum values. The statements of the ECB "centrists" about the end of the monetary policy tightening cycle, strange as it may seem, helped the euro to find its footing. It's all about the growth of German bond yields to the maximum of 2011.But the decision of the Bank of England to make a pause in monetary restriction even more aggravated the situation of sterling.In the United States, the rates on 10-year treasures are at the peak of 2007, and on 2-year treasures - 2006. But this is not enough for EUR/USD sellers, as many factors are taken into account by the prices of the asset.Investors realize that high rates are serious and for a long time. The FOMC raised the neutral rate from 2.5% to 3.0% by a majority vote.Rising US debt bond yields with declining stock indices will support the dollar in the medium term. But in the short term, everything is possible, including buying EUR/USD on a break above 1.067 amid speculative selling fixation.
Sep 22, 2023 Read
Forex analysis and forecast for USD/JPY for today, September 20
USD/JPY, currency, Forex analysis and forecast for USD/JPY for today, September 20 On Wednesday, USD/JPY buyers turned active and the pair broke through the resistance at 148.00.Despite the low market volatility, caused by expectations of the results of the Fed meeting, the "bulls" managed to update the local maximum and are not going to give up their positions.Investors believe that at today's meeting the Fed will keep the rate at the same level of 5.5%, but will make it clear that with a new round of inflation caused by rising oil prices, the regulator will continue to tighten monetary policy and in November may raise the rate by 25 basis points to 5.75%.Japan's macroeconomic statistics, published on Tuesday, failed to have a significant impact on the yen dynamics. In August, exports decreased by 0.8% and imports by 17.8%. Japan's trade deficit for the month rose from ¥66.3 billion to ¥930.5 billion.On Friday, the Bank of Japan will hold a meeting. It is possible that the regulator will change the current course of monetary policy, especially as USD/JPY is confidently approaching 150.00, and inflation has not yet approached the 2% target.USD/JPY Technical AnalysisOn the chart of the day, the Bollinger Band Indicator remains in an upward direction. At the same time, the MACD Indicator is declining in a positive range and has formed a weak sell signal, which may be canceled soon. The Stochastic oscillator is flat in the overbought range.In case of price consolidation above the key resistance at 148.00, we open long positions with the expectation of reaching the target at 149.00. Stop-loss is set at 147.36.It makes sense to consider selling only if the pair falls below 147.36. In this case, the nearest target of the "bears" is at 146.00. Stop-loss of the deal is placed at 148.00.
Sep 20, 2023 Read
EUR/USD: will the Fed find arguments against the dollar?
EUR/USD, currency, EUR/USD: will the Fed find arguments against the dollar? FOREX Fundamental Analysis for EUR/USD on September 20The Fed is unlikely to raise the rate at today's meeting, but it will probably keep the forecast of monetary restriction in November. Expectations that the federal funds rate will rise to 5.75% remains a long-term supportive factor for the dollar, which will prevent EUR/USD from staying above 1.07 for long.Oil is getting more expensive in the market and this could add strength to the new round of inflation. CPI is already reacting to rising energy costs, core inflation will not be long in coming, although it does not take into account the cost of the energy component. But, rising fuel costs are dragging up prices in all segments of the economy.Clearly, the oil market will not allow the Fed to put a stop to the cycle of tightening financial conditions. U.S. bond yields continue to storm to new highs, which confirms the market's faith in the Fed's hawkish monetary policy course.The background favors the greenback, which not unreasonably feels itself a full-fledged leader in forex currency trading. Of course, in six months to a year, China's economic recovery will help revitalize the euro. But getting rid of the dollar now is not the best trading strategy. We will use every EUR/USD growth to enter sales.Today the Fed meeting may give a signal for realization of this forex trading strategy. Markets have no doubt that Jerome Powell will confirm the regulator's intention to raise the rate in 2023 to 5.75%.Moreover, if the Fed chief shows concern about the rising cost of oil and the subsequent round of inflation, investors may intensify dollar purchases in hopes of more aggressive actions of the Central Bank.Today the volatility of currency pairs should come out of its usual lull. We can consider risky purchases of EUR/USD if resistance at 1.0715 is broken. But it is better to use the growth of the pair for selling, as well as a break of support at 1.0650.
Sep 20, 2023 Read
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