Market Enters Large-Scale Shorting Territory, Shorting at Highs Preferred

Summary:

The EURUSD gathered bullish momentum on Thursday, climbing above the recent selling level of 1.0600. With the Fed's decision to pause rate hikes once again, the US dollar continued to weaken against other currencies, helping the asset move higher ahead of mid-term data releases.

SELL EURUSD

Close Time

CLOSED

1.06458

Entry Price

1.04480

1.07400

1.17581 +0.00102 +0.09%

94.2

Pips

Loss

1.04480

1.07400

Exit Price

1.06458

Entry Price

1.07400

Fundamentals

As widely expected, the Fed kept its monetary policy unchanged at the November meeting. Information from Chairman Powell's speech suggests that if employment data worsens, the upward inflation risk could cool down, allowing the Fed to end its tightening policy.

As we've emphasized for the past three years, based on the Fed's dual mandate, it will ultimately be the deterioration in employment that will override the constraints of inflation for the Fed to end rate hikes or even shift to rate cuts. Only the Fed among global central banks relied on quantitative easing during the pandemic to save employment with inflation constraints. Now, it's just a reversal of that.

However, if the current strike extends to other industries and leads to more layoffs, the Fed could officially pivot. While employment is a slow variable, and there are two more employment data releases before the December meeting, the suspense for the December meeting is not low. Patience is more prudent than jumping to conclusions.

In the Eurozone, the final reading of the manufacturing PMI for October was 43.1, slightly down from 43.4 in September, deepening the challenges.

Looking closely at individual countries, especially Germany, the largest economy in Europe, though still in a sluggish range at 40.8, it reached a five-month high. France dropped to 42.8, hitting a 41-month low.

In the overall downturn, Greece showed resilience, with the index rising to a two-month high of 50.8. In contrast, countries like Ireland, Spain, and Italy continue to show economic pressures at 48.2, 45.1, and 44.9, respectively.

Although the recent stabilization of PMI data may suggest that the economic downturn is nearing its low point, critical indicators such as new order indices remain in the red. As history has shown, the stagnation of these important indices could lay the foundation for a recovery.

Furthermore, Eurozone countries are simultaneously sliding. Due to the decline in the PMI for major economies such as France, Italy, Spain, and Germany, it is clear that these countries may experience sectoral contractions this quarter.

Overall, the fundamentals also favor the US dollar, as the US economy remains relatively resilient compared to European countries and outperforms other major economies (EU, China, and Japan). This will help the Fed maintain higher interest rates for a longer time than other major central banks, and heightened geopolitical tensions exacerbate risk aversion sentiment, supporting the safe-haven US dollar.

Market Enters Large-Scale Shorting Territory, Shorting at Highs Preferred_1

Technical Analysis

The EURUSD currently maintains a positive bias in intraday trading. The strength of the Euro is based on the weakness of the US dollar.

If the EURUSD continues to rally strongly from its current level and breaks above 1.0693, the bulls may extend the upward momentum towards the 38.2% Fibonacci retracement level at 1.0763, which ranges from 1.1274 to 1.0447.

On the downside, if it falls below the support level at 1.0522, it indicates that a larger downtrend initiated from 1.1274 is ready. The primary target will first return to the key support at 1.0448, followed by the 1.0199 Fibonacci level.

From a broader perspective, the decline initiated from the mid-term peak at 1.1274 may still be a correction in the upward trend from 0.9534 (the 2022 low). However, the possibility of a complete trend reversal is increasing. In either case, the current downside target should be the 61.8% Fibonacci retracement level at 1.0199, ranging from 0.9534 to 1.1274.

Overall, holding a bearish position as long as the 55-day SMA (currently at 1.0665) is maintained to prevent a reversal of the rally is recommended. Going short at highs is the preferred strategy.

Trading Recommendations

Trading Direction: Short

Entry Price: 1.0673

Target Price: 1.0448

Stop Loss: 1.0740

Valid Until: 2023-11-16 23:55:00

Support: 1.0615, 1.0517, 1.0448

Resistance: 1.0676, 1.0693, 1.0716

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Market Enters Large-Scale Shorting Territory, Shorting at Highs Preferred

Fundamentals

Technical Analysis

Trading Recommendations

Risk Disclosure