EUR/USD exchange rate

[void]

Hi,
can anyone explain this chart, tell me what happened in the last 8 months (ok, I get this more or less), what happened in the last few days and why and what will likely happen in the near future (I mean, what plays the most significant role).
Thanks

 

[369]

USD getting stronger since FED is quickly raising high interest rates based on 75 points each time.
The current spike is caused (false hope) that the fed is going to pivot on dec 2 which is not going to happen.
If you look in a bigger picture S&P near TOP of downward channel which means USD should soon begin to get stronger again

 

[void]

USD getting stronger since FED is quickly raising high interest rates based on 75 points each time.

yes, the history is not a rocket science

The current spike is caused (false hope) that the fed is going to pivot on dec 2 which is not going to happen.
If you look in a bigger picture S&P near TOP of downward channel which means USD should soon begin to get stronger again

anyone else has opinion that strong?
I totally agree with the trend but I was kind of surprised with rather strong correction in the last days in favour of EUR without any significant move from ECB

does anyone here think ECB is capable of raising interest rates by at least 2-3% without breaking Eurozone? it is a rather funny question considering the adequate rate should be around 10%

 

[369]

yes, the history is not a rocket science

anyone else has opinion that strong?
I totally agree with the trend but I was kind of surprised with rather strong correction in the last days in favour of EUR without any significant move from ECB

does anyone here think ECB is capable of raising interest rates by at least 2-3% without breaking Eurozone? it is a rather funny question considering the adequate rate should be around 10%

the move was caused by a better as expected CPI which gives "officaly" people hope that the fed will pivot

 

[JackAlabama]

Hi,
can anyone explain this chart, tell me what happened in the last 8 months (ok, I get this more or less), what happened in the last few days and why and what will likely happen in the near future (I mean, what plays the most significant role).
Thanks
View attachment 4218

The dollar rally is done.
Market priced in 6% interest with US economy still running on top speed. triple lol It is a joke beyond belief, but it was the narrative (we know how strong narratives can be)
Matter of fact, this is impossible without causing US default and wide spread riots (mortgage, credit card interest, auto loan and and and).

That being said, this caused a dollar rally for the record books and DXY going parabolic like shitcoins in 2017 mania.

But now, first slowly and then steadily, reality sinks in and the parabolic unwind starts. People realize that the Fed will be forced to back down (they will comply willifully of course) or the economy there breaks completely and state default would be in the cards.
So DXY turns down, structure has been broken clearly.

yes, the history is not a rocket science

anyone else has opinion that strong?
I totally agree with the trend but I was kind of surprised with rather strong correction in the last days in favour of EUR without any significant move from ECB

does anyone here think ECB is capable of raising interest rates by at least 2-3% without breaking Eurozone? it is a rather funny question considering the adequate rate should be around 10%

Euro/Yen just profit from DXY fall. It does not mean these currencies are better, they are much much worse than USD. But USD has been overvalued like Doge and shibacoin and just corrects downwards.
They wont raise rates without any tricks. It cannot be done without causing widespread chaos. (They might try to suck and blow at the same time tho).

 

[denniz07]

Right now Europe looks not bad. Guess if gas prices spike again the exchange rate will go down.
Actually hoped to see Euro at 0.9 but right now not sure about the direction. Guess nobody knows.

 

[JackAlabama]

Right now Europe looks not bad. Guess if gas prices spike again the exchange rate will go down.
Actually hoped to see Euro at 0.9 but right now not sure about the direction. Guess nobody knows.

Well, long USD has been the trade for long, everyone knew and did it and there was 0 reasons why it should ever go down.
Bubble popped for a year or two
The funny thing is this reverses the bad euro exchange rate without euro needing to become "better"

 

[JohnnyDoe]

Since even central bankers don’t have a clue (including of what themselves are doing), it is unlikely you will find an answer here.
The only certain thing is that any good with unlimited supply has zero value.

 

[JackAlabama]

Since even central bankers don’t have a clue (including of what themselves are doing), it is unlikely you will find an answer here.
The only certain thing is that any good with unlimited supply has zero value.

Indeed. The most needed credential of todays central bankers is to not have a clue.
Being skilled would be a major deterrent of following the political winds.

 

[JohnnyDoe]

But you can always follow the self-fulfilling prophecy of TA and have fun with the charts.

 

[369]

You guys are naive if you think central bankers don't know what they do............if you think they are going to pivot on dec 2 you will like many get a nice surprice.
Powell clearly stated there is no other option as keeping raising
If you think they don't want to break econemy so maybe you start rethinking why they are slowing down econemy since 2020

 

[Mike Forman]

The Code inflation index was 7.7pct vs 8pct forecasted, so it means inflation is slowing down but its still going up and is well above the target of 2pct. Only when we see inflation dropping to 4pct the Fed will pivot.

Now nothing has changed with exception Powel mentioned a 0.75 pct increase was possible in December instead of 0.5pct and now its back to 0.5pct.

The strong dollar already valued in this increase, hence the dollar index got stronger and it was foreseen the dollar would drop again as the fed will slow down the speed of rate increase.

The EUR rallying this much just as the equity market was a show of too much optimism according me and all will drop again, probably not anymore as their lowest point it was in the past 2-3 weeks for now.

The markets are unpredictable and any event can trigger an increase or drop. I'm still bullish on the dollar for now but I believe later this year the dollar will drop.

 

[369]

FED can't pivot.....its a myth to get buyers back into market nothing more.
from dec 5th EU stops taking oil from Russia.
US has only Oil reserves for arround 20 additional more days and their reserves will be empty.
What do you think is going to happen with the oil price when everyone needs oil but the supply have been massivly reduced
What does a higher oil/gas price means for inflation ?

 

[Larin]

tell me what happened in the last 8 months
As others have mentioned, the spike in the inflation has caused central banks to increase interest rates. The Federal Reserve (US central bank) has acted most aggressively raising rates from 0 on January 1, 2022 to 4% today.

The EU central bank on the other hand has raised its rate from -0.5 to 1.5%. As a result today, should you wish, you can exchange your EUR for USD and get double the money, which is undoubtedly what some major banks did. Furthermore, the Fed has signaled that they will continue to aggressively increase the interest rate until inflation subdues (whether you believe they will follow through is another story altogether). Whereas the European Central bank has been much slower to act and many believe that they can only raise the rates so far before triggering a big recession in the Eurozone. Therefore, the market believes the USD is a stronger currency at the moment (hence the 20-year lows of the EUR against the USD).

The other factor weighting negatively against the EUR is the fact that USD is seen as a safe heaven during a recession. Therefore, most major currencies have fallen against the dollar in the past 8 months, including in countries where the interest rate is well above 10% (ex. Poland, Hungary).

what happened in the last few days
The consumer inflation report released last week showed a slowdown in inflation. Many believe that this will cause the Fed to slow down their rate increases and as long as inflation continues to go down, eventually to stop or even reverse the increases. I can tell you that if that report had gone the other way, we would be seeing historic lows across the board right now.

and why and what will likely happen in the near future (I mean, what plays the most significant role).

If the trend of the decrease in inflation in the US continues we may start to see the reversal. On the other hand if inflation goes back up we will most likely see a reversal. The other factors I think will be:
- the Fed rate increase in December
- EU Central bank increase in December
- Economic data (GDP growth/decline, employment numbers, consumer spending, inflation)

The reason it is so hard to predict what the exchange rate will do is because you are dealing with two huge entities (US and the EU) and one of those entities consists of multiple countries and you are making a bet on what a lot of different indicators for those entities will show over weeks and months. Day trading Forex is not for the fainthearted.

 

[void]

- the Fed rate increase in December
- EU Central bank increase in December

isn't the biggest difference and a crucial asymmetry that favors US given by the fact that US will hardly fall apart as a consequence of raising interest rates while ECB has almost zero space to manoeuvre if they want to avoid bankruptcy of couple of key EU states and chain reaction?

of course it's not painless for the US but they are in much better position not mentioning that current political situation in the world makes US stronger

 

[Larin]

isn't the biggest difference and a crucial asymmetry that favors US given by the fact that US will hardly fall apart as a consequence of raising interest rates while ECB has almost zero space to manoeuvre if they want to avoid bankruptcy of couple of key EU states and chain reaction?

of course it's not painless for the US but they are in much better position not mentioning that current political situation in the world makes US stronger

Well, I think you've just answered your own question about the past 8 months.
You have certainly articulated one world view.

However, I believe someone in this thread argued that US also doesn't have an unlimited space to raise the rates.

Then again, I really hope we don't have to experience the world which tests your assertion about ECB not having space to maneuver, which could happen if inflation in the Eurozone remains persistently high say beyond Q3 2023.

 

[void]

Then again, I really hope we don't have to experience the world which tests your assertion about ECB not having space to maneuver, which could happen if inflation in the Eurozone remains persistently high say beyond Q3 2023.

I probably don't know enough about situation in the USbut ECB interest rates around 5% (which is far from enough to cope with current inflation) would most definitely result in many states not being able to service their debt.

 

[369]

US is raising interest to crack something to cause damage.
The high fast increase of interest rates makes that money also loans which have been taken for nearly free and invested in asia for double digit growth comes back to the US.
China is losing a lot of liquidity because of that.
Is the US going to pivot ?Yes but definetly not know as their goal currently haven't been reached.
Don't think the ECB and FED decides based on what is best for their citizens but for their agenda

 

[Mike Forman]

US is raising interest to crack something to cause damage.
The high fast increase of interest rates makes that money also loans which have been taken for nearly free and invested in asia for double digit growth comes back to the US.
China is losing a lot of liquidity because of that.
Is the US going to pivot ?Yes but definetly not know as their goal currently haven't been reached.
Don't think the ECB and FED decides based on what is best for their citizens but for their agenda

US will continue to raise interest rates at least until March 2023 until inflation would suddenly drop and pivot then. After that they expect to keep the rate flat and from third quarter of 2023 they will probably lower down the rate slowly and start again with QE (bullish equity, bearish USD)

The EUR is in a much tougher situation, with inflation exceeding 11pct and the slow action of ECB to increase the rates will keep chasing inflation in the EU for at least 6-24 months longer compared with the US. The EU always is 6-24 months behind the US to take actions and improve conditions of the recession.

Definitely the USD index will drop again, it is at present the USD that dictates the EURUSD rate. How will Europe get their inflation under control with the energy crisis that will be felt next winter, is the big question. Meanwhile more events in Europe going from social unrest, rapid unemployment increase, companies reducing their presence in Western Europe and finally.. risk of war (Russia or internal conflict in the EU?)

So the eurusd will go several times up and and down in the coming period and is quite unpredictable with exception that the trend will be that usd will get weaker

 

[JackAlabama]

isn't the biggest difference and a crucial asymmetry that favors US given by the fact that US will hardly fall apart as a consequence of raising interest rates while ECB has almost zero space to manoeuvre if they want to avoid bankruptcy of couple of key EU states and chain reaction?

of course it's not painless for the US but they are in much better position not mentioning that current political situation in the world makes US stronger

The US is in a very vulnerable position itself. Highly divided, over extended, has 100T debt... They cannot afford high interest rates. (If they could, why did they had 0 since 2008).

US will continue to raise interest rates at least until March 2023 until inflation would suddenly drop and pivot then. After that they expect to keep the rate flat and from third quarter of 2023 they will probably lower down the rate slowly and start again with QE (bullish equity, bearish USD)


View attachment 4222

The EUR is in a much tougher situation, with inflation exceeding 11pct and the slow action of ECB to increase the rates will keep chasing inflation in the EU for at least 6-24 months longer compared with the US. The EU always is 6-24 months behind the US to take actions and improve conditions of the recession.

Definitely the USD index will drop again, it is at present the USD that dictates the EURUSD rate. How will Europe get their inflation under control with the energy crisis that will be felt next winter, is the big question. Meanwhile more events in Europe going from social unrest, rapid unemployment increase, companies reducing their presence in Western Europe and finally.. risk of war (Russia or internal conflict in the EU?)

So the eurusd will go several times up and and down in the coming period and is quite unpredictable with exception that the trend will be that usd will get weaker

Usually it does not work in such a smooth way, one can look at UK for example and their tough stance to increase rate. They had to intervene massively and hence weakening their currency. This lies ahead.