empty
 
 
12.07.2022 05:17 PM
Will speculators save the euro?

The euro was missing some couple of pips to parity with the US dollar, after which the bulls rushed into a counterattack. Back in February, the EURUSD pair was trading at 1.15, the collapse was rapid, and many investors considered the 1 to 1 level as a reason to lock in profits, so why not start a rebound? At least technically. From a fundamental point of view, the downward trend remains in force.

Another nail in the coffin of the regional currency was the drop in investor confidence in the German economy to the lowest level since 2011. According to Bloomberg forecasts, indicators of expectations and current conditions from the ZEW Institute are rapidly diving into the abyss amid fears of a 55% probability of a recession in the German economy.

Dynamics of investor confidence in the German economy

This image is no longer relevant

Weak statistics caused German bond yields to fall and widened the rate differential with their US counterparts. As a result, the EURUSD pair almost touched parity. Will profit-taking on shorts be able to stop the collapse? Perhaps for some time, after which the market, having got rid of the ballast, will go down again. After all, the prevailing logic in Forex is this: the Fed still has more room to raise rates in the future, especially given the strong US labor market. The ECB is simply forced to act cautiously, given the dependence of the eurozone economy on the energy crisis.

And this is not the only barrier for Christine Lagarde and her colleagues. An increase in the deposit rate will lead to an increase in yields and widening spreads in the European debt market, which the ECB cannot allow. As a result, the central bank will most likely use the "stop and go" strategy, which in the 1970s failed to prevent the US from avoiding a recession and provoked a rise in unemployment above 10%.

Not surprisingly, amid different rates of monetary restrictions in the US and Europe, hedge funds added $769 million to their net short positions in the euro this week by July 8. As a result, the figure reached $2.2 billion, the highest level since November.

This image is no longer relevant

Despite the rebound of EURUSD from the parity area amid profit taking, Deutsche Bank and Citigroup forecast the pair to fall to 0.95. It is quite possible that most of the negative from the shutdown of the Nord Stream has already been taken into account in the euro quotes, but what if the US stock indices resume their downward trend? Morgan Stanley believes that disappointing corporate reporting will contribute to this. A 16% strength in the US dollar over the past year would hurt earnings-per-share by 8%. The data will be disappointing, the S&P 500 will fall, global risk appetite will decline, and the US dollar will rise as a safe-haven currency.

Technically, there is a steady downward trend on the EURUSD 4-hour chart. In such conditions, the rebound from dynamic resistance in the form of moving averages and pivot points at 1.007, 1.012, and 1.0155 should be used to form shorts.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2024
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $5000 more!
    In November we raffle $5000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

Can't speak right now?
Ask your question in the chat.
Widget callback