The policy divergence that drove EURUSD at the start of the year, having dissipated somewhat over the intervening months, has now returned as we head into the final stretch of the year. The ECB have stated their willingness to do all necessary to stimulate inflation including potential further rate cuts and an increase in their current quantitative easing program. The US Federal reserve look to be moving ever closer to lift-off with their recent October FOMC delivering a more upbeat assessment and signalling that a December lift-off remains a possibility, with chances seemingly buoyed by the bumper US jobs report last week. CME now price a 70% likelihood of a December lift-off up from 40% previous.
With market expectancy of further ECB easing and a potential December US lift-off EURUSD looks probe to further downside as we run-down the final months of the year. Retail markets continue to buy into EURUSD declines suggesting scope for further downside.
- Having broken through both the the rising trend line from the April and July lows and the year to date lows, EURUSD now looks set to challenge those year to date lows in coming weeks.
- Price has broken not only through key trend line support but also key structural support, closing under the key 1.0820 May lows.
- Trade A: Look to fade a retest of the broken structural support and rising trend line support into the 1.08/0870 area in line with bearish Order Flow Trader signal and price below VWAP, stops above previous swing high 1.11
- Trade B: Sell a break of the 1.0705 low stops above 1.09
Exit short from 1.0809 at 1.06. Will monitor retracements for re-entry – 25/11