The October rally of EUR/USD significantly increased the number of “bulls” who are ready to throw the white flag at the end of the first decade of November. In the beginning, Citi recommended a long euro position with a target of $1.14 and a stop order of $1.1025, Standard Chartered placed the target slightly higher ($1.15) and a protective stop below ($1.095). Both positions are ready to close in the negative, and such examples are not uncommon. The initiative in the main currency pair quickly passed from buyers to sellers, which is not surprising. The situation has changed.
From the point of view of logic, the bet on long-term longs on EUR/USD is quite justified. The main reasons for the weakness of the euro for most of the year (the pair closed in the red zone 8 months out of 10) were the negative impact of trade wars and Brexit on the eurozone economy and the willingness of the ECB to ease monetary policy. After lowering the deposit rate and resuscitation of QE in September, the ammunition of the European Central Bank seemed exhausted, and the progress in relations between London and Brussels, as well as Washington and Beijing, made it possible to hope for the inadmissibility of promiscuous Brexit and the end of trade wars. As a result, belief in a V or U-shaped economic recovery in the currency block pushed up EUR/USD quotes.
Monthly dynamics of EUR/USD
In early November, the pound fell into the trap of early elections and pulled the euro into the abyss. The uncertainty in British politics has not disappeared. If the Conservatives win, Albion will leave the EU on the terms of an orderly Brexit, Labor – we can expect a second referendum. The same goes for trade wars. The US and China are ready to sign an agreement in the framework of Phase 1, but contradictions between the countries remain, and the negotiations in the framework of Phase 2 are sure to drag on.
Mixed statistics on the eurozone and worsening estimates of economic growth add fuel to the fire of the EUR/USD peak. If German production orders pleased, then industrial production disappointed. The Council of Economic Experts presented the German government with a forecast of GDP for 2019 at + 0.5%. The European Commission believes that the eurozone economy will expand by 1.2% this year, inflation will grow by 1.3%. If that is the case, the ECB will again brush its hands, and rumors will spread about the expansion of the monetary stimulus in the market.
States, on the contrary, are bursting with health. After strong GDP and employment data, business activity and the trade balance were pleased. Most Fed officials are comfortable with the current level of the federal funds rate, and Atlanta Federal Reserve Chief Raphael Bostic said he would vote against a decrease in October. If rotation allowed.
Technically, the bears’ breakout of EUR/USD support at 1.107 activated the “bat” pattern, the initial target for which is located near 1.094-1.095. At 1.096, there is a pivot level, so fights in this zone are expected to be hot. If the bulls find the strength to defend the support at 1.104, it makes sense to expect the pair to consolidate in the range of 1.104-1.127.
EUR/USD, the daily chart
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