บทที่ 30 12/05 EURUSD: Go Short at the Highs as the "Death Cross" Turns Downward
Abstract: The Purchasing Managers' Index (PMI) of the service industry in the eurozone improved slightly in November and finally reached 48.7, higher than 47.8 in October. The comprehensive PMI also rose to 47.5 from 46.5 last month.
Fundamentals
The EURUSD still faces continued downward pressure, causing it to hover around the 1.0820 range on Tuesday, which also coincides with the key 200-day SMA.
On the other hand, the U.S. Dollar Index (USDX) strengthened slightly around 103.70, contributing to a positive start to the week. The sharp rise in the USDX is noteworthy, especially given the small retracements in U.S. Treasury Securities yields across maturities.
On the broader economic background, the current monetary policy stance remains unchanged, and investors are considering that the Federal Reserve and the European Central Bank (ECB) may cut interest rates in the spring of 2024.
Within domestic data, the final November services PMIs for Germany and the eurozone as a whole exceeded their preliminary values of 49.6 and 48.7, respectively.
Looking at individual Member States, the aggregate PMI results showed mixed results. Ireland posted a three-month high of 52.3, while Spain hit a three-month low of 49.8. Italy posted a two-month high of 48.1 and Germany a four-month high of 47.8. The French PMI remained unchanged at a stable 44.6.
Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said that "the services sector continued to decline in November." He noted that the modest improvement in the activity index did not provide much optimism for the recent rapid economic recovery, and highlighted several worrying trends, such as the fifth consecutive monthly decline in new business and subdued business expectations, which remain "well below the long-term average."
According to our GDP forecasts, the economic outlook for the eurozone is not optimistic, as inferred from the latest PMI indicators. GDP is likely to fall in the fourth quarter. If two consecutive quarters of negative growth are defined as a recession, then the eurozone is currently on the "brink" of falling into recession.
ECB Executive Board member Schnabel said in an interview, that given the "significant" decline in inflation, the ECB can cancel plans for further interest rate hikes, and policymakers should not guide interest rates to remain stable in the middle of 2024.
Schnabel's remarks marked a dovish shift in her position. In the past year and a half, she pushed the largest interest rate hike in the history of the ECB. Just a month ago, Schnabel insisted that raising interest rates was still an option because the last mile of fighting inflation might be the hardest. Schnabel also warned that given the rapidly changing inflation data, policymakers will be surprised when inflation falls, just like when inflation rises; Therefore, don't guide the market too far on the interest rate trend. Schnabel is the first policy hawk of the ECB to express a change of opinion.
Technical Analysis
The EURUSD's downward pattern from the 1.1016 level is still in progress and the intraday bias remains to the downside. The next target is the 55-day SMA (currently at 1.0770. A sustained break below this level would test 1.0668 support.
On the upside, a break above 1.0912 secondary resistance would turn the EURUSD neutral again. A further break above the 1.1016 level would resume the uptrend from the 1.0447 level and retest the 1.1274 high.
The momentum indicator suggests that the upward momentum is losing momentum, reflecting the recent weakness in the market. The Relative Strength Index has shifted to the positive zone, while the Stochastic Oscillator has a bearish cross in overbought territory, suggesting that the decline will continue. However, the MACD has flattened around the zero level, reflecting a neutral outlook for the EURUSD.
Overall, the long-term outlook remains neutral. A decisive break above the 1.1275 level is needed to bring the positive outlook back into play. On the other hand, a break below the 1.0668 level could change the bias to bearish. For short-term trading, because it is still in the downward death cross structure in the 1D timeframe, it is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 1.0845
Target price: 1.0668
Stop loss: 1.0982
Deadline: 2023-12-18 23:55:00
Support: 1.0807, 1.0767, 1.0700
Resistance: 1.0848, 1.0913, 1.0965
