What could be the Euro’s saviour?
The onward march of the Dollar has left many casualties in its wake. For observers of GBPUSD, whilst painful the decline leaves the pair within its longer-term range. However, those currency pairs that exhibited more distressed valuations prior to this recent ascent of the US Dollar are left looking rather out of place. Many would argue from a value perspective that EURUSD, the most heavily traded currency pair within the market, is one such casualty. For hopeful sellers of EURUSD, is there any hope for a turnaround.
From a technical perspective every tick lower in this critical currency pair is paving the ground for a more favourable technical analysis. However, momentum and value indicators will not be enough in isolation to confirm a correction in the currency pair. After all, those same technical indicators that might anticipate a shift in momentum have very little bias between a pause in any given trend and reversal of it at least with respect to correcting stretched valuations. It we look at market positioning, whilst seemingly not overstretched, net longs in USD vs G10 currencies has continued to rise. This could lead to instability and exacerbate USD selling should a change of market sentiment prevail.
Instead, some respite could be offered from an observation of the data calendar. The start of November included significant US data releases which have tended to support the US Dollar. Depending upon your forecast, the switch in focus towards Eurozone PMI and other soft data publications could afford opportunity to the vulnerable Euro. Overall, we have noted a trend of negative PMIs in this environment with a non-negligible risk that such data could confirm contractionary conditions within the currency area. The market will likely need a catalyst from such data or other market sensitive headlines in order to trigger a technical or position-based correction within EURUSD.
Discussion and Analysis by Charles Porter
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