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EURUSD: Uptrend Remains Intact Despite Seeming Weakness of Bulls

Inflation and Recession
Summary:

Before this week's key data are released, the USD had entered a huge support zone. The market could face a big challenge this week as we emerge from the downturn in U.S. yields and begin to study how markets can begin to price the upcoming recession. In a pessimistic scenario, this could turn a bullish market of the USD into a bearish one.

Buy EURUSD
EXP
EXPIRED

1.02800

ENTRY PRICE

1.05500

TGT PRICE

1.01790

SL PRICE

1.08692 +0.00021 +0.01%

--

Point

EXPIRED

1.01790

SL PRICE

1.06341

CLOSING

1.02800

ENTRY PRICE

1.05500

TGT PRICE

Fundamentals

The USD received a huge boost ahead of this week's key data. Is it time to shift the view on the USD's turnaround? To answer such a question, we must first review the minutes of the FOMC meeting released last week.
The minutes of the Federal Open Market Committee meeting last Wednesday confirmed the market's established expectation that the Federal Reserve would reduce the rate hike to 50 basis points in December, and then tighten the policy and keep it unchanged for most of next year. These signals suggest that the market is pricing for an impending recession unless inflationary pressures can somehow normalize in the event of a typical soft landing.
At present, the market is celebrating the decline in the yields of U.S. Treasury Securities, but at some point, the market will have to consider the impact of the economic recession on corporate profits, credit cycles, and asset prices. Fears of a recession intensified as yields fell, the most interesting challenge of the USD and its cross-asset correlation. Will the USD continue to fall as yields fall as the Fed eventually relaxes, or will weaker risk appetite and poorer liquidity, and fears that the Fed will prove too slow to switch to easing, lead to a more significant deleveraging across the market to keep the USD well supported? We believe that if we do see a new round of general risk aversion, the safe haven status of the USD will still exist.
Meanwhile, any indication that inflation has failed to maintain a steady downward path is unwelcome. This could be exacerbated by China's easing of its restrictions and its stimulus & push-up of commodity prices as Europe and the US fall into recession. In this case, the USD is more likely to be sensitive to risk sentiment, as it is hard to see a further drop in yields under such conditions.
In yesterday's trading, the EURUSD once again interacted with its 200-day SMA and broke the recent pivot high of around 1.0480, and an RSI above 50 could give buyers hope for further gains. If the FOMC meeting on December 14 can provide a test of the current market background, the EURUSD could hit new highs.
EURUSD: Uptrend Remains Intact Despite Seeming Weakness of Bulls_1

Technical Analysis

Following yesterday's rejection to break the psychological barrier of 1.0480, the EURUSD fell on Tuesday. Nevertheless, the uptrend remained intact before it fell below 1.0220.
The bulls are now making another attempt to break above the psychological barrier of 1.0480 and maintain a bullish bias above the 200-day SMA. However, the momentum indicators reflect some divergence in the buying interest. Specifically, the RSI peaked near its overbought level of 70 before hitting a new high, and the stochastics turned to the downside, while the MACD was slightly flat below its 0-axis, increasing the risk of a downside reversal.
Nevertheless, the potential downside correction will not deter bulls from buying in the short term, on the contrary, it will attract more bargain hunters (those who go long at the lows). Unless the price returns to its previous low of 1.0220 and is below the 20-day SMA, the 1.0194 level of 23.6% Fibonacci retracement of the 1.2348-0.9535 downtrend will become of immediate concern.
On the bright side, however, if bulls successfully break the threshold of 1.0400 again, the recovery is expected to accelerate above the long-term downtrend. As a result, another bulls' victory could boost buying interest until the threshold of 1.0400 is tested. Moving higher from here could increase bulls' confidence in the EURUSD's further bullish outlook.
Overall, in the short term, investors will continue to support the EURUSD as long as the bottom near 1.0220 remains valid, although bulls appear to be somewhat weak. It is recommended to go long at the lows with the reference to the former supports that are not broken.

Trading Recommendations

Trading direction: Long
Entry price: 1.0280
Target price: 1.0550
Stop loss: 1.0179
Deadline: 2022-12-13 23:55:00
Support: 1.0220, 1.0185
Resistance: 1.0400, 1.0480
Risk Warnings and Investment Disclaimers
You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or signal, or any other product is suitable for you based on your investment objectives and financial situation.

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Eva Chen

Analyst

Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.

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