Reasons for EURUSD correction are growing

30 November 2023 123
Reasons for EURUSD correction are growing

As of today, an overbought technical picture has been formed on the EURUSD currency pair.

On the daily timeframe, the RSI indicator has been around 70% since mid-November. In addition, the price gap between the levels of 1.076 and 1.082 remained unclosed. This gap was formed as a result of the strong momentum that occurred after the final statements at the last Fed meeting and Jerome Powell's comments. This price breakout took place on November 14.

The overhang for EURUSD is also confirmed by the ratio of traders' long/short positions in the over-the-counter market. As of today, the ratio is 15/85.

There is every reason for a downward technical correction. It requires a final push for the situation to turn in the opposite direction.

Let's look at today's fundamental background. The EURUSD upward breakout was triggered by very low U.S. inflation figures, not expected by the market.

And how are the euro zone countries doing with this inflation?

There are a lot of CPI reports being published both today and yesterday, on Wednesday. Data for Spain, Italy, Germany have been released. All of them unanimously show a decline in inflation, and far below their forecasts. Today, data for France and the whole eurozone will be published, and there is no reason to believe that they will somehow fundamentally diverge from yesterday's CPIs for other European countries.

So, in response to lower inflation in the U.S., the eurozone is showing similar dynamics. This is a fundamental basis to counterbalance EURUSD by decreasing its quotes.

In addition, the Core Personal Consumption Expenditure (PCE) price index for the U.S. will be released today at 13.30 GMT. This indicator is another marker of consumer inflation. If this index turns out to be higher than projected, the anticipated correction will not decline smoothly in the chart, but as a falling knife.

The overall recommendation is to sell EURUSD with a target of 1.078.

A stop-loss should be set at 1.105.

This content is for informational purposes only and is not intended to be investing advice.

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