EUR/USD: has the Eurodollar growth stopped?
12/21/2018
Current situation
Stocks and the dollar continued to fall on Thursday after the Fed raised interest rates on Wednesday. The Fed leaders unanimously decided to raise the key rate to a range of 2.25% -2.5%. However, the central bank announced a possible slowdown in monetary tightening next year.
At a press conference, Fed Chairman Jerome Powell said that, according to central bank executives, next year the economy will be strong enough that rates could be raised twice. Earlier, the Fed planned 3 rate increases in 2019 and 2 more increases in 2020.
The US dollar declined significantly this week. On Thursday, the DXY dollar index, which tracks the US currency against a basket of 6 other major currencies, fell to an 8-week low, dropping to 95.73. At the beginning of the European session on Friday, futures for the DXY index traded higher (near the mark of 96.06), however, the pressure on the dollar persists.
US Treasury Secretary Stephen Mnuchin tried to reassure investors, saying that the reaction of markets to the results of the last Fed meeting was excessive. "I think we are clearly in a situation in which the market over-responded to the statements of the Fed", said Mnuchin. According to him, the central bank may not have to raise rates at all next year if inflation remains low.
However, investors' pessimism persists. The Fed continues to reduce its balance sheet and raise interest rates, but tensions remain in US political and trade relations with China.
Sales in stock markets led to a sharp strengthening of the yen and the euro, which are the funding currencies.
The Eurodollar strengthened since the beginning of the week, reaching a local maximum of 1.1485 on Thursday. However, on Friday the EUR / USD pair is falling. Investors take profits at the end of the week and close their positions ahead of the long weekend due to the celebration of Catholic Christmas early next week.
From the news today, attention should be paid to the publication (at 13:30 GMT) of a whole block of important macro data from the United States, including GDP data (final release), which are one of the key (along with labor market and inflation data) for the Fed in terms of its monetary policy. The forecast for the 3rd quarter of this year is +3.5% GDP growth. Despite the relative decline (in the previous quarter, GDP growth was + 4.2%), this is a strong indicator. If the data turns out to be worse than the forecast, the dollar and stock indices will react with a decrease.
It was the last full trading week this year. On Monday, markets in many countries will be closed. In full, trading will be restored only on Wednesday, and next Monday the world will celebrate the New Year.
Support and Resistance Levels
EUR / USD rose sharply this week, despite the Fed raising interest rates. Sales in stock markets led to an increase in demand for the yen and the euro, as for funding currencies. On Thursday, the EUR / USD pair reached a 5-week high near the 1.1485 mark. However, growth expected by many investors to the first strong resistance level of 1.1545 (ЕМА144 on the daily chart) did not take place, and on Friday EUR / USD is falling. A decline below the support level of 1.1400 (EMA50 on the daily chart) and inside the downward channel on the daily chart will indicate return of EUR / USD to the global bearish trend, and a breakdown of the short-term support level of 1.1384 (EMA200 on the 1-hour and 4-hour charts) will be a signal for opening short positions. The targets for further decline are support levels of 1.1290 (Fibonacci 23.6% correction to a fall from 1.3900, which began in May 2014), 1.1270 (December lows), 1.1210 (November and year lows), 1.1000 (bottom line of the downward channel on the day chart).
In the case of the resumption of growth and breakdown of the local resistance level of 1.1485, corrective growth will be possible to the resistance level of 1.1595 (ЕМА200 on the daily chart). Below this key resistance level of 1.1595 negative dynamics prevails.
Support Levels: 1.1400, 1.1384, 1.1310, 1.1290, 1.1270, 1.1210, 1.1000
Resistance Levels: 1.1470, 1.1485, 1.1545, 1.1595, 1.1700, 1.1790
Trading Scenarios
Sell in the market. Stop-Loss 1.1490. Take-Profit 1. 1.1400, 1.1384, 1.1310, 1.1290, 1.1270, 1.1210, 1.1000
Buy Stop 1.1490. Stop-Loss 1.1390. Take-Profit 1.1545, 1.1600, 1.1700, 1.1790