empty
 
 
You are about to leave
www.instaforex.eu >
a website operated by
INSTANT TRADING EU LTD
Open Account

19.01.202209:58 Forex Analysis & Reviews: Analysis of EUR/USD. USD comes out on top

This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here.

The euro/dollar pair returned to the range of 1.1260-1.1360 where it was trading last year. Bears almost completely recouped the losses of last week. Yesterday, they pushed the pair to the 13th pattern. The strong pullback turned out to be a correction despite expectations of a trend reversal. The euro is vulnerable to changes in the US currency. Therefore, the euro/dollar pair weakened as soon as the US dollar resumed an upward movement.

Exchange Rates 19.01.2022 analysis

Last week, the pair grew solely because of surging inflation in the United States, the hawkish rhetoric of Fed policymakers, and the dovish statements of the ECB. Apparently, fundamental factors favored the US currency. At that time, the greenback was decreasing across the board. As a result, the euro/dollar pair almost approached the 15th pattern. According to some analysts, traders began to close open positions on the US dollar after Jerome Powell's speech in the Senate. The Fed chair did not clarify when exactly the regulator would hike the interest rate, which disappointed investors. There are those who believe that the US dollar faced a massive sell-off due to the Buy the Rumor, Sell the Fact trading strategy. Apart from that, the US currency incurred losses amid high demand for risky assets.

As it turned out, the greenback recovered from its short-term decline. Currently, there are no reasons for a sharp drop. Expectations of monetary policy tightening will continue to push the US dollar higher. Judging by the rhetoric of FOVC members, the hawkish scenario (three or four key rate hikes) looks likely. Now, Fed policymakers do not provide comments on this issue. However, last week, Brainard, Williams, Daly Bostic, Mester, George, Barkin, Harker, and Bullard spoke in favor of the interest rate hike. Almost all of them said that the first key rate hike may take place at the March meeting. Regarding the future prospects of tightening monetary policy, they were more evasive, avoiding a direct answer. At the same time, some representatives of the Fed (in particular, Bostic, Bullard) reported that they expect three or four interest rate hikes within the current year.

The US dollar began to gain momentum this week amid such comments, rising Treasury yields, and a decline in the stock market. Moreover, weak US macroeconomic reports (retail sales data) did not undermine its rise. At the same time, the euro weakened despite the strong ZEW indicators of Economic Sentiment for Germany and the EU. Preliminary estimates were very optimistic. Nevertheless, the actual figures significantly exceeded forecasts. Indicators for Germany and in the eurozone were quite upbeat. In Germany, the index jumped to 51 points versus the forecast reading of 32. This is the best result since July last year. Back then, the figure totaled of 63 points. The Pan-European indicator also rose, reflecting traders' confidence about investment conditions. In January, the January index climbed to 49.4 versus the forecast reading of 29, reaching a 5-month high.

Exchange Rates 19.01.2022 analysis

However, speculators ignored this data. Yesterday, the pair declined by almost 100 pips due to the recovery of the US dollar. Bears were unable to push the pair to the 12th pattern, settling at the 13th level. Hence, market participants remain cautious ahead of the January FOMC meeting, scheduled for next Wednesday.

In my opinion, the euro/dollar pair will soon return to the range of 1.1260-1.1360 in anticipation of the Fed's meeting results. At the same time, bears may take the upper hand thanks to the different approaches of the ECB and the Fed on monetary policy, as well as the US 10-year vs Germany 10-year spread bond yield. While analysts are discussing the possibility of three or four key rate hikes, the eurozone money markets are pricing in only a 20% chance of an ECB rate hike in December 2022. The majority of economists polled by Reuters are confident that the European Central Bank may raise the interest rate no earlier than the first half of 2023.

Thus, it is recommended to open short positions in the range of 1.1260-1.1360.

Irina Manzenko
Analytical expert of InstaForex
© 2007-2024

Open trading account

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.




You are now leaving www.instaforex.eu, a website operated by INSTANT TRADING EU LTD
Can't speak right now?
Ask your question in the chat.

Turn "Do Not Track" off