EUR/USD correction or trend change?
2022.12.06 02:25
EUR/USD correction or trend change?
Budrigannews.com – Strengthened once more yesterday, reaching a high of 1.06 by midday, only to fall to a low of 1.0484 this morning.
The EUR/USD was supported in the early part of yesterday’s day by hopes for a reopening of the Chinese economy and a weaker dollar due to the possibility of a slowdown. However, profit taking halted the rise as the currency pair approached the crucial 1.06 level.
The release of robust U.S. data helped the dollar and accelerated the fall of the EUR/USD, as the index, and all came in above expectations. This hurt the EUR/USD.
A Wall Street Journal article by Fed specialist Nick Timiraos, who is currently regarded as the most accurate analyst on the intentions of the central bank, also provided arguments to the dollar bulls shortly after these releases.
Timiraos wrote that the Fed might continue to raise wages at higher-than-expected levels as a result of the solid wage gains in the previous week’s
He also mentioned December 13 as a crucial event, which, given that the market’s base case for the February FOMC meeting is a 25 basis point increase, could result in another 50 basis point hike in February if the numbers are better than anticipated.
The question now for the EUR/USD is whether the beginning of the correction seen since yesterday is merely a breather or whether a broader correction is to be feared for the remainder of December. Banks doubt that the EUR/USD will continue to rise.
The EUR/USD has maintained a positive monthly balance (averaging +1.5%) in 15 of the 23 December months since the unified currency was established. Seasonality favors the upside.
However, despite the EUR/USD’s 5 percent increase in November, which marked the pair’s best month since 2010, there is a chance that the immediate bullish potential has already been exhausted and that a correction is imminent.
According to MUFG analyst Derek Halpenny, who was cited by Bloomberg, “The seasonal euro bias is strong but the rally in October and particularly November may mean the move has started earlier than usual.”
According to him, “the fundamentals for a sustained selloff of the US dollar are not yet really in place,” and he predicts that the EUR/USD pair will regain parity in early 2023.
ING Bank, on the other hand, expressed concern that issues related to rising energy costs might reappear, putting pressure on the euro.
In a note, ING stated, “Given the high sensitivity of EUR/USD to the eurozone’s terms of trade, which is primarily driven by energy prices,” additional upside risks for energy commodities equal downside risks for the euro.
Last but not least, it is important to keep in mind that not all banks are of the same opinion. Yesterday, Société Générale wrote, “Year-end short covering and market bias to be upbeat about 2023 should help the euro,” recommending a buy of the EUR/USD pair with a goal of 1.10 by the end of the year.
