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#1 12-01-2022 09:00:35

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 3200
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EUR/USD: is consolidation over yet? Traders are waiting for a break

EUR/USD: is consolidation over yet? Traders are waiting for a break


EUR/USD has been trading in a narrow range since late November. What could cause a breakout and, more importantly, where would it go next - 1.10 or 1.20?

The EUR/USD exchange rate is in a tight consolidation that began last year on 26 November. For more than a month and a half, the pair seems stuck in the 1.13 area.

Every attempt to break below 1.13 has triggered fresh waves of buying, while any attempt at 1.14 has been met with sell orders. So what needs to happen for EUR/USD to move? For that matter, where will it go once the range ends?

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Hawkish Fed is bullish on the US dollar
Since last June, EUR/USD has been trending lower. It has fallen from over 1.20 to under 1.12 mainly due to an accommodative ECB. In addition, the Fed's hawkish turn in the last quarter of last year triggered a further decline.

Balance sheet reduction, or quantitative tightening, should begin soon, we believe.

Inflation is the reason the Fed is in a hurry to raise the federal funds rate. The central bank is responding to a tight labour market and rising inflation by tightening monetary policy.

In theory, all of the above options are bullish for the U.S. dollar. However, there are some balancing facts from across the Atlantic Ocean.

Factors weighing on the euro should soon abate
The monetary policy divergence between the ECB and the Fed has played a crucial role in the EUR/USD decline, especially in the latter part of last year. But it's not the only thing that has.

Rising energy import costs have weighed on the eurozone's trade balance. In addition, the resurgence of virus cases and the slowdown in China (a major European trading partner) have also had an impact. However, these factors should soon subside, perhaps as early as the spring.

What's next for EUR/USD - 1.10 or 1.20?
Technical traders are looking for a breakout. 1.14 and 1.1250 are key levels in the coming weeks, with an increased likelihood that both will be visited.

EUR/USD should find buyers on any attempt at the 1.10 area in the medium to long term, while a move above 1.16 should put the 1.20 level back in the cards.

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"Anything worth having is worth going for - all the way." - J.R. Ewing

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