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EURUSD is on the eve of a change
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Platform]: EURUSD is on the eve of a market change". Hope this helps you! The original content is as follows:
Wednesday, November 19th. Against the background that major economies are about to usher in a series of key data and central bank information disclosures, the EURUSD fluctuated within a narrow range around 1.1580 during the North American session, not far from this week's low of 1.1565, reflecting the cautious sentiments of both bulls and bears before important events.
On the one hand, the latest inflation data in the Eurozone has cooled slightly, and the market's imagination of the European Central Bank's subsequent policies is being reconstructed; on the other hand, the employment and demand-side data in the United States have released certain signs of weakness, but they have been partially obscured by the strong demand for safe havens in the U.S. dollar amid rising risk aversion and wait-and-see on the Federal Reserve meeting minutes and non-farm payrolls report. How to understand the weak fluctuations of the euro against the US dollar under the current macro environment is the core issue in observing this round of exchange rate fluctuations.
The latest Harmonized Consumer Price Index released by the Eurozone shows that overall prices rose from 0.1% in September to 0.2% in October, but the year-on-year growth rate fell from 2.2% to 2.1%, getting closer to the 2% target set by the European Central Bank. In terms of core inflation, it rose to 0.3% month-on-month and remained stable at 2.4% year-on-year. This set of data sends an intriguing signal: after price fluctuations in energy and some xmtraders.commodities subsided, overall inflationary pressure in the euro area continued to ease, while services and core items remained moderately sticky. This xmtraders.combination does not constitute a new reason for tightening, nor is it enough to force the European Central Bank to quickly switch to strong easing, but is more consistent with the neutral and dovish framework of "maintaining restrictive interest rates for a longer period of time, but always being prepared to deal with economic downturns." For the euro, this means that it is difficult to establish an interest rate advantage, and the currency itself lacks obvious support from the expected side of interest rates.
In contrast, the latest batch of labor market and demand changes in the United StatesThe high-end data does not provide support to the US dollar nominal interest rate expectations as a whole. The number of initial jobless claims rose to 232,000 in the week of October 18, an increase from 219,000 the previous week, and the number of continuing jobless claims also rose to 1.957 million, both showing a marginal weakening of the labor market. At the same time, ADP employment data estimates that xmtraders.companies lost an average of about 2,500 jobs per week in the four weeks to November 1. Although this has improved from the average net loss of about 11,250 jobs in the previous week, the overall number is still barely considered "weak." From a macro logic, this series of employment signals will tend to strengthen the market's bets on the Federal Reserve cutting interest rates at a future interest rate meeting, and push down medium- and long-term U.S. bond yields, thus weakening the U.S. dollar's interest rate advantage.
However, what has recently affected the euro against the US dollar is not just the fundamentals of interest rates and inflation, but the superposition of macroeconomics and risk sentiment. On the one hand, market expectations for the Federal Reserve to cut interest rates in December have increased slightly, reflecting concerns about the slowdown in the U.S. economic momentum; on the other hand, the recent sell-off in global stock markets has significantly strengthened risk aversion. In an environment where risk appetite has cooled, the U.S. dollar, as a traditional safe-haven currency, has been favored by funds. While funds have reduced their positions in stocks and some high-risk assets, they have also increased their allocation to cash and high-liquidity instruments. This kind of "safe-haven dollar buying" can often overcome the negative impact of weaker interest rate expectations in the short term, keeping the U.S. dollar index strong at a high level and putting the euro against the dollar under pressure to consolidate below 1.16.
Let’s look at the structural changes within the fundamentals of the United States. Weak employment data will pose certain constraints on the subsequent performance of the consumption, real estate and service industries. However, on the other hand, previously released factory order data in the United States showed that orders increased by 1.4% month-on-month in August, in line with expectations, and partially offset the 1.3% decline in the previous value. Manufacturing demand has not experienced a stalled decline, but has shown a state of "slow slowdown amid fluctuations." This structural xmtraders.combination makes the Fed more dependent on data in its policy orientation and is not eager to give a clear easing timetable. Some officials emphasized that more data are needed to determine the next policy direction, which to a certain extent inhibited the market's aggressive behavior towards rapid interest rate cuts, thereby also limiting the dollar's downside.
An important time point in the current market is the upcoming release of the Federal Reserve meeting minutes and the delayed release of the September non-farm payrolls report. The minutes of the meeting are expected to further reveal the decision-makers' xmtraders.comprehensive judgment on falling inflation, weakening employment margins and tightening financial conditions: If the minutes show that there are still significant internal differences on future interest rate cuts, the market may re-evaluate previous expectations for rapid easing, thus forming a period of support for the US dollar; conversely, if concerns about economic downside risks are more prominent in the minutes, the market may increase bets on downward interest rates. As the flagship indicator of the U.S. labor market, non-agricultural data may also significantly affect the judgment of medium- and long-term interest rates and economic resilience in a short period of time, thus providing directional guidance for the euro against the dollar.
Technical aspects
From the daily chart, the euroIt has fallen all the way from the high of 1.1918 to the US dollar, with a periodic low of 1.1468. The overall price is still in a top-down adjustment structure. The current exchange rate is hovering around 1.1580, which is slightly lower than the intensive trading area around 1.1607 in the previous period. It shows the characteristics of low horizontal consolidation in the short term. The 1.1700 line above is a position that has been under pressure many times in the early stage, forming an important suppression; below, focus on the two stage lows of 1.1541 and 1.1468, which play a supporting role in the price.
In terms of indicators, the MACD columnar line has gradually shortened from the low and turned upward, and the fast and slow lines have continued to move closer and try to repair towards the zero axis, reflecting that the downward momentum has weakened, but has not xmtraders.completely reversed the weak pattern in the mid-term; RSI is located near the neutral zone and has risen slightly, indicating that short-term sentiment has been slightly restored but the momentum is limited. Overall, the current trend is more like a technical shock consolidation stage after the previous decline. Subsequent price performance on the above-mentioned support and pressure areas needs to be xmtraders.combined to determine whether the trend will evolve further.
Looking ahead
Logically, the evolution of EURUSD may depend on marginal changes in several key variables. First, if subsequent U.S. employment and inflation data continue to point to a significant cooling, and the financial market remains relatively stable, the market's expectations for an interest rate cut by the Federal Reserve may be further consolidated, thereby xmtraders.compressing the U.S. dollar's interest rate advantage and giving the euro some breathing space. Secondly, if Eurozone inflation approaches its target and growth data improves beyond expectations, the market may reassess the ECB's monetary policy space, and the euro's fundamental pricing is expected to be revised. Third, if risk sentiment deteriorates significantly again, especially if global stock markets and high-yield assets experience a new round of significant adjustments, the demand for safe-haven U.S. dollars may be magnified again, putting the euro against the U.S. dollar facing a new round of downward pressure. These paths are all uncertain, and are more reflected in probability distributions than inevitable conclusions in a single direction.
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