When EURUSD was standing stronger around 1.15, we published in our daily bulletin that the currency pair likely had further to fall based upon our technical studies and sentiment in the market. That expectation has been fulfilled throughout November with only one of the subsequent trading sessions following that break providing any relief for the Euro against the Dollar. The fragility of the Eurozone’s handling of the spread of Covid infections had been one factor behind the deterioration of the Euro. Speculations of the lockdowns that we have now seen announced across many nations in the Eurozone were a factor in providing fuel for the build-up in short positioning behind the Euro.
When positioning data was last observed (16thNovember), the market was relatively balanced with respect to the Euro. A liquidation in those trades seeking a strengthening in the Euro that had endured from earlier in the year left net positioning at just -1% of open interest. This shows us that we are not facing oversold conditions within the Euro meaning that there once again remains space within the market to accommodate an even weaker Euro as net shorts are built up further.
We mentioned technical factors and the role of historical price dynamics and analyses in delivering the bearish fortune for the Euro. Having breached October’s year-to-date lows very little technical price floors present themselves. The market reads mild resistance around 1.12 and more substantial price resistance at 1.0760. Thanks largely to the harsh devaluation of the US Dollar last year in line with the monetary easing seen since the outbreak of the pandemic, there are relatively little visible points of support for the Euro in the medium run charts.
It is apparent that the riots seen over the weekend in Belgium and the Netherlands will also put selling pressure on the Euro. If there’s one thing the market hates more than threats to the economy from national lockdowns, it’s social unrest and protest. With confirmation last week from President Lagarde that her central bank will not rush into monetary normalisation for fear of stifling economic recovery across the Eurozone, markets are wary of the Euro falling behind its peers.
Discussion and Analysis by Charles Porter