Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

EURUSD Drops Below 1.20 As Dollar Shorts Are Trimmed

/ US Dollar Jul 09, 2021 - 11:10 AM GMT

By: S_N_Chatterjee

Activity is back in full swing in the forex market after the latest FED meeting, which has stirred all major currency pairs, including the EURUSD. Even though the pair has been trading up since the beginning of April, the order flow shifted towards the bearish side as interest rates are expected  to rise as soon as 2022 in the US, due to a faster economic recovery and robust inflation figures.

A weakening US Dollar for the entire 2020 had been a supportive factor for the global economy, at a time when the recovery from the COVID-19 pandemic had started. However, experts at Axia Investments believe that reverse in Dollar weakness will have the opposite effect, acting as a tightening.


US Dollar and Euro


The FED hints at tapering

For the past several FED meetings, investors have been closely monitoring the dot plot, since that could have provided hints on how FOMC participants expect rates to evolve in the future. The June 15-16, 2021, meeting provided some important developments, considering 7 participants were expecting the Federal Funds Rate to rise in 2022, much earlier than what the market had been expecting.

The central bank’s speech around inflation was also on the cautious side, but still with the same view that inflation is elevated mainly due to transitory effects. If the new projections turn out to be true and the FED ends up being the first central bank to hike rates after the COVID-19 pandemic, it can act as a major tailwind for the US Dollar, thus pushing the EURUSD exchange rate lower.

Consensus on the Dollar – bearish at the beginning of 2020

Leading experts were mostly in favor of continued US Dollar weakness heading into 2021, as the persistent monetary stimulus in the USA was not projected to end. Short-interest on the Dollar spiked and now that the consensus is shifting, the global reserve currency is rising on the back of short-covering.

Axia’s experts expect currency trading to remain choppy over the upcoming months, as economic uncertainty could weigh on the interest rate hike prospects. Navigating the post-pandemic economy comes with unique challenges since the massive amount of fiscal spending drove the global debt-to-GDP to new extremes, now in a territory not seen since the end of WWII.

EURUSD weakens – can it break below key support?

EURUSD technical analysis

The EURUSD continues to trade inside a triangle formation, now pointing south, threatening to retest a key support area located around 1.18. There are already two prior bounces of that zone, which is why there could be some Dollar weakness once the exchange rate reaches it.

However, the main risk for an extension on the downside is if buyers are not rejoining the trend strong enough and a breakout below the structure occurs. That will be a major technical development that could push the EURUSD exchange rate towards a key psychological area around 1.10.

Uncertainty on the next major move forward will continue to linger since interest rate hike expectations could change on the back of sluggish global recovery, or slowing inflation.

By S N Chatterjee

Copyright 2021 © S N Chatterjee - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in