25.11.2021 11:34 PM
Euro: long downward trend and free fall. The dollar cannot offer any other option

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The dollar index showed other currencies who is the boss in the house, and continued to hold the mark further. No doubts and information stuffing about the fact that the greenback has peaked have yet led the US dollar bulls astray, who are likely to continue to push the rate up. Bullish momentum remains strong, but such successes are usually followed by a healthy correction. It may be implemented in the near future, but this will not affect the future prospects in any way.

Marks below 95.00 on the index are the norm and an opportunity for long positions ahead of the December Federal Reserve meeting. The dollar's growth will at least last until the middle of next month, then it will depend on what signal the central bank sends to the markets at the last meeting of the year.

Now everything points to an acceleration in the reduction of asset purchases and another strong consumer price index. The economy is recovering, and the labor market report for November, given the economic optimism, should come out positive. Officials of the US central bank are increasingly and confidently talking about an earlier rate hike. All this can provide the potential for the growth of treasury yields before the FOMC meeting and support the dollar.

The yield of 10-year securities rose to 1.71%, above the resistance was noted at 1.78%. While it will be located above the mid-September low by 1.25%, the long-term bullish forecast will remain, analysts at Commerzbank write.

The dollar will have a strong resistance at 98.00. At the same time, it should become a kind of window to reach the level of 100.00.

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The euro is going out of the way

What is the euro left to do in such conditions? Just nod and obey the dollar, there are no other options.

November was a real disaster for the euro, the downward trend accelerated due to the divergence of the Fed and ECB policies. There are many other factors, of the latter, the growth of coronavirus disease and the need for national lockdowns can be noted.

The peak of economic recovery in the eurozone came at the beginning of summer, since then the indicators have begun to decline methodically. Monetary policy, line of conduct... There are a lot of differences, there is a whole gulf between the US and Europe, and all this is not good for the European currency. It is unlikely that all this will change quickly and dramatically at the click of your fingers.

The EUR/USD pair has fallen to the area of 1.1200 – this is a new 16-month low, and, yes, from a technical point of view, it looks extremely oversold now. For market players, as a rule, this becomes an occasion for long positions. Historically, such an oversold signal for EUR/USD should be interpreted differently. Further, with a high degree of probability, there will be an increase in volatility and a strengthening of the downward trend.

For example, in 2008, 2010 and 2014, the fall of the RSI below 30 on the weekly charts was followed by the collapse of the euro, which was similar to a free fall.

The signal for a reversal may be the consolidation of the indicator above the oversold level. This will mean that the euro has reached the bottom and the sell-off is over. It is difficult to say how long it will take. So, in 2014-2015, more than six months have passed, during which time the euro has lost 18%.

The long-term and many times confirmed support level is around 1.0700. In the next six months, the EUR/USD pair, subject to a slowdown in economic growth and related problems, may be somewhere, well, very close.

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Natalya Andreeva,
ইন্সটাফরেক্সের বিশ্লেষণ বিশেষজ্ঞ
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