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Andreas Zanin
Education | November 3, 2021

KTM FX Weekly: Levels to focus

Euro continues to lose its height against the dollar for the third time in a row. And this is not an unexpected move. The price closed lower for seven months for the year.

Analytics:

  • The price traced out a triple top pattern on the monthly chart during July-September.
  • As per the historical monthly data, November 2020 was the strongest since 2006. So, what will be in the case of November 2021?

In the month gone by, the price was very volatile but ended lower 0.25%, extending the fall to the third straight month amid continuous Euro weakness. Among euro crosses EURJPY standout with a 2.30% uptick, rest settled lower.

In the past week, our subject currency continued to be trading within ranges, but month-end selling pushed the euro to the lower end. Technically, the pair managed to hold the 200MA weekly for the fourth time straight.

Data-wise, Eurozone inflation tick higher more than expected in October. And the economy beat economists’ estimates in the 3Q.

The major highlight for the week was the ECB policy setting. As expected, the ECB October meeting ended with no new headlines. However, the euro propelled higher against the dollar on Thursday. Post ECB meeting Danske bank said, Lagarde’s apparent failure to talk down market pricing sent the pair higher on Thursday.

Coming to this week’s data points, German retail sales in September dropped 2.5%.

Looking ahead, the FOMC meeting grabbed the market attention. Data wise ISM manufacturing PMI grab the attention.

FOMC preview: Markets are expecting a QE tapering announcement this week. The tampering pace is the key to the market reaction.  On the fixed income segment 10Y, USDT yields closed at 1.58% on Monday. Analysts are expecting 2% in the coming months.

At higher time frames, last week, the long end yield, which is a 30-year yield, was falling below 20-year yields for the first time since 2009. The flattening curve indicates the Fed will raise the rates sooner than later to combat inflation. And this also indicates another recession in the coming years.  But we need more confirmation, not one day or a week action.

Guggenheim Investments said Yield Curve Flattening Carries a Warning About Looming Rate Hike Cycle.

  • ING said, ‘A 3 November taper announcement looks inevitable now that officials, by and large, agree that “substantial further progress” has been made on both the inflation and employment mandates.”
  • Moody’s Analytics- The Federal Reserve will likely begin reducing its $120 billion in monthly asset purchases at the conclusion of the November meeting of the Federal Open Market Committee, a month earlier than in the baseline forecast.
  • Westpac: The Fed likely announces a brisk QE tapering of the order of $15bn per month, while Oct payrolls later in the week should be at least as strong as consensus given recovery momentum appears to be resuming.

Technically the price has been under the hammer for the past ten months, nearly entire this year so far. In the coming months, we expect the euro weakness persists on the back of policy divergence.

Ahead of this week’s FOMC meeting, focus on the 1.1500 levels, which have been a lifesaver for the past five weeks. On top of this, 200MA (weekly) is the key moving average to focus on.

Levels to focus on:

  • 50% fib at 1.1500 and 61.8 fibs at $1.1290.
  • As per the A-B-C corrective pattern, the 123.6 fe at 1.1460 and 161.8fe 1.1220.

If the price is moving higher, watch out for 1.1700. A decisive breakout above 1.17 would allow the price to squeeze towards 1.19 levels.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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