It is difficult to see a stable trend in the market for a long period of time. They are always accompanied by corrections. Is it time for EURUSD correction? Let’s discuss this topic and make up a trading plan.
Daily Euro fundamental forecast
There has been too much greed in the market lately. Stocks and bonds are actively sold out amid expectations that US inflation will collapse to the 2% target, forcing the Fed to make a dovish reversal. A weak dollar indicates that the US is no longer the most successful currency in the world at a time when the opening of the Chinese economy can contribute to warming up global GDP. Perhaps investors are wrong. Meanwhile, fear forced EURUSD to take a step back.
Markets seem overconfident. They predict the same rapid inflation slowdown as during the 2008 global economic crisis or during the draconian measures of Paul Volcker in the 1970s. History shows that a rapid drop in prices occurs only during recessions. However, the probability of a US recession is decreasing against the background of a strong labor market and improving financial conditions. The situation is aggravated by the eurozone, which is ready to avoid a recession and the newly opened Chinese economy. Positive factors from abroad will make the US economy more stable.
Dynamics of US financial conditions
Source: Bloomberg.
If the market is wrong, and inflation will not fall as rapidly as in the fourth quarter, the EURUSD rally seems too fast. Institutional investors who have increased USD net shorts to record levels since June 2021 can start taking profits at any opportunity. For example, during the release of positive eurozone macroeconomic data. When everyone buys, there is a great opportunity to sell.
Therefore, it is not surprising that the growth of consumer sentiment in the eurozone to the highest levels since February 2022 caused… the euro collapse. Despite the fact that its positive dynamics is a new argument in favor of the fact that the eurozone will avoid recession.
Dynamics of consumer sentiment in the eurozone
Source: Bloomberg.
The EURUSD drop that started at the European Forex session stopped in the American one due to the growth of the US stock indices, which was not based on macroeconomic data. The catalyst for the rally was Barclays’ statement that the worst for the semiconductor sector is already over. As a result, the stocks of companies engaged in the production of chips contributed to the growth of the entire market.
Daily EURUSD trading plan
If greed gives way to fear, there will be a EURUSD decline. Is it time for a correction? Indirect signs may indicate this. For example, the pair’s fall in response to the strong European PMI. If the crowd starts buying again, the major players will have the opportunity to sell well. In this regard, the inability of the euro to consolidate above $1.087 followed by a fall below $1.085 and $1.083 may be a reason for the formation of short-term short trades.
Price chart of EURUSD in real time mode
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