empty
 
 

Forex Analysis & Reviews: EUR/USD: Growing bearish sentiment limits upside potential
time 29.11.2022 05:47 PM
time Relevance up to, 01.12.2022 01:53 PM

The euro wants to rise, but it can't yet. The dollar is tired of strengthening, but the "hawkish" rhetoric of the Federal Reserve officials keeps it afloat. The EURUSD pair fell from the 5-month highs after New York Fed President John Williams said that the fight against inflation will continue until 2024, and St. Louis Fed President James Bullard said that markets underestimate the Fed's aggression. How can the euro not fall to such a roar of hawkish artillery? However, the regional currency is not a rusty one.

The "bulls" on EURUSD are clinging to improvement of the situation in China, where under the influence of mass protests, Beijing may ease restrictions connected with COVID-19 and to Christine Lagarde's speech. Lagarde would be very surprised if European inflation starts to slow down and argues that the ECB is obliged to stop stimulating demand. To do so, it needs to bring rates up to levels that limit GDP growth as quickly as possible. Such a stance by the head of the central bank increases the chances of a 75 bps increase in the cost of borrowing in December and extends a helping hand to the euro.

However, the approach of a global recession and the readiness of US stock indices to restore the downward trend limit the potential of the EURUSD rally. Barclays claims that the pair has no more foundation to rise, and TD Research notes that the sell-off of the US dollar has gone so far that speculative positioning for this currency has returned to neutral levels.

The first-ever inversion of the global debt market yield curve suggests troubling thoughts. The US economy will not cope with the aggressive monetary restriction of the Fed, the European economy with the energy crisis, and the Chinese economy with COVID-19. We are looking at a contraction of world GDP in 2023—an extremely sad news for EURUSD.

Dynamics of the global yield curve

This image is no longer relevant

A rather pessimistic scenario is drawn by Morgan Stanley. It agrees that aggressive rate hikes have been the main driver of the S&P 500's peak in 2022, but QT will be the elephant in the room in 2023. The reduction in the Fed's balance sheet leads to a decrease in liquidity, which negatively affects the US stock market.

Dynamics of the S&P 500 and liquidity volumes

This image is no longer relevant

This image is no longer relevant

Thus, after the euphoria associated with the Fed's slower monetary tightening, gloomy sentiment is returning to the market. And the dollar is the currency of the pessimists. EURUSD is desperately resisting the intention to break out to 1.05, and expectations of a "hawkish" speech of Jerome Powell and weak statistics on German inflation are on the side of the "bears." Bloomberg experts forecast its slowdown, which will lower chances to raise the deposit rate by 75 bps at the December meeting of the ECB.

Technically, on the EURUSD daily chart, the formation of a bar with a large upper shadow and the Double Top pattern indicates the seriousness of the bears' intentions. At the same time, to confirm the reversal of the upward trend, the quotes need to fall below 1.0325. It will allow us to increase the shorts formed from the level of 1.045.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2023
EURUSD
Euro vs US Dollar
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Start trade
Start trade

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.

  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST
  • Chancy Deposit
    Deposit your account with $3,000 and get $1000 more!
    In February we raffle $1000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
    JOIN CONTEST
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
    GET BONUS
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
    GET BONUS
  • 30% Bonus
    Receive a 30% bonus every time you top up your account
    GET BONUS

Recommended Stories

The U.S. dollar is losing its appeal as a safe haven: what does this mean for the EUR/USD pair?

A strong U.S. dollar was one of the main headwinds for gold and all precious metals last year as investors embraced the currency as a safe haven. But this forecast

Irina Yanina 16:42 2023-02-03 UTC+2

Weak US jobs data will support equities and put pressure on dollar

Markets continued to take advantage of the positive sentiment that emerged after the FOMC meeting on Wednesday. This is not surprising since the start of the new year, they have

Pati Gani 13:22 2023-02-03 UTC+2

GBP/USD. Overview for February 3. 2023

The GBP/USD currency pair increased as well, though far less significant than the EUR/USD pair. Additionally, this situation ought to have caused traders to pause. Why is the euro strengthening

Paolo Greco 11:20 2023-02-03 UTC+2

EUR/USD. Overview for February 3, 2023

The EUR/USD currency pair was moving in multiple directions on Thursday, but the previous evening it left the side channel it had been in for the previous three weeks

Paolo Greco 10:47 2023-02-03 UTC+2

Bitcoin rallies on Powell's remarks

Bitcoin's 40% rally in January, the best in a month since 2020, massive capital inflows into cryptocurrency-focused ETFs, and a $250 billion increase in market capitalization over the past four

Marek Petkovich 10:17 2023-02-03 UTC+2

EUR/USD: demand falls despite latest ECB rate hike

The ECB announced a 0.5% increase in its interest rate and explicitly said that there could be a similar one in March, depending on the economic data that will come

Jozef Kovach 08:21 2023-02-03 UTC+2

EUR/USD. The Fed hit the dollar, the ECB hit the euro

The European Central Bank increased the interest rate by 50 points at this year's first meeting, while announcing a 50-point hike at the next meeting in March. Despite such hawkish

Irina Manzenko 05:13 2023-02-03 UTC+2

GBP/USD. The Bank of England disappointed the British currency

The Bank of England, following the results of the first meeting in 2023, raised interest rates by 50 basis points to a target of 4.0%. At the same time

Irina Manzenko 23:00 2023-02-02 UTC+2

The implications of the Fed press conference for the markets

Federal Reserve Chairman Jerome Powell said policymakers expect a couple more interest rate hikes before suspending their aggressive tightening campaign, even as they slowed their efforts to rein in inflation

Andrey Shevchenko 22:59 2023-02-02 UTC+2

The euro is capable of more

Anything that rises can stay high. After Federal Reserve Chairman Jerome Powell failed to play the role of super-cool hawk and released the market's animal spirits, EURUSD soared above 1.1

Marek Petkovich 22:59 2023-02-02 UTC+2
Can't speak right now?
Ask your question in the chat.