Dollar Downside Momentum Limited, Beware of Euro Bulls Taking Profits on Retracement

Forex

Summary:

Market expectations for the Fed to continue to raise interest rates have not yet been dashed, with the terminal rate likely to reach more than 5% next year. The dollar's recent downside momentum may have to come to a temporary end, while the EURUSD is at risk of a further retracement.

SELL EURUSD

Close Time

CLOSED

1.05200

Entry Price

1.03700

1.06500

1.17394 +0.00011 +0.01%

130.0

Pips

Loss

1.03700

1.06503

Exit Price

1.05200

Entry Price

1.06500

Fundamentals

Previously, the dollar continued to weaken under the influence of expectations that the Fed would slow down the pace of interest rate hikes, with non-US currencies benefiting significantly and the euro picking up after hitting the bottom. However, since the U.S. non-farm payrolls data exceeded expectations last Friday, market sentiment seems to have made a "180° turn". The dollar changed its previous weakness and started a "counterattack".

In the face of the Fed's most aggressive rate hike cycle in decades, the job market continues to show great resilience. While the Non-Manufacturing PMI rose to 56.5 in November from 54.4 in October, indicating that demand and the U.S. economy remain strong. The market seems to have exaggerated the risk of an economic recession in the U.S., also indirectly suggesting that it will be much more difficult than expected for the Fed to bring inflation down to target. At the same time, this also dispels the expectation that the Fed will soon suspend interest rate hikes, and the dollar's recent weakness may come to a temporary end.

In addition, there are signs that the economic recession in Europe may not be as severe as previously feared, and the ECB has shown the possibility of slowing the pace of interest rate hikes. But the market has not yet broken the expectations of the Fed to continue to raise interest rates further, and the future interest rate peak may reach more than 5%, which is obviously faster than the ECB tightening action. Coupled with the European economic growth being slower than the US, this will lead to a less optimistic outlook for the euro. The EURUSD may retrace further in the short term.

Technical Analysis

EURUSD: Dollar Downside Momentum Limited, Beware of Euro Bulls Taking Profits on Retracement_1

In the daily chart, the EURUSD has oscillated all the way to the upside, with very impressive gains, and has surged more than 1,000 points from the bottom this year, and the trend may have reversed. However, extreme gains are unsustainable, and reversals are unlikely to happen overnight. The recent rise has slowed down significantly, with the indicator RSI in the overbought area showing continuous bearish divergence; in particular, it was blocked back down when approaching the above key resistance level at 1.06. The gains in the short term are too sharp and there is a risk of taking profits at stage highs.

It is recommended to mainly go short in the short term. Shorting can be attempted after the price rallies to around 1.0520, with the target set near the key support level below 1.0367 and the stop loss set above 1.062.

Trading Recommendations

Trading direction: Short

Entry price: 1.0520

Target price: 1.0370

Stop loss: 1.0650

Support: 1.0367/1.0430

Resistance: 1.0600/1.0520

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Risk Disclosure

The risk of loss in trading financial instruments such as stocks, FX, commodities, futures, bonds, ETFs and crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No decision to invest should be made without thoroughly conducting due diligence by yourself or consulting with your financial advisors. Our web content might not suit you since we don't know your financial conditions and investment needs. Our financial information might have latency or contain inaccuracy, so you should be fully responsible for any of your trading and investment decisions. The company will not be responsible for your capital loss.

Without getting permission from the website, you are not allowed to copy the website's graphics, texts, or trademarks. Intellectual property rights in the content or data incorporated into this website belong to its providers and exchange merchants.

Recent Searches

Top Searches

Markets

News

Analysis

User

24/7

Economic Calendar

Education

Data