Forex Trading Signals: EURUSD October-November 2017

■ Market: Foreign Exchange

■ Asset: EURUSD

It seems that the last quarter of 2017 is signaling a new macroeconomic era for the currencies of developed countries. This new era includes a significant monetary shifting towards the beginning of a global economic 'tapering'. First, let us evaluate our previous Forex Trading signal.

Evaluating Our Previous Trading Signal

In our previous trading signal (August 2017), we have forecasted a bearish US Dollar market, more specifically: “The USDX trend is clearly bearish. The key support area for USDX is NOT close. Currently, USD-X trades at 95.48, and the support zone commences at 90.80 (S1)”. Actually, the US Dollar Index slumped from 95.48 to below 91.00 very rapidly, founding support at about 90.95 points. The previous trading signal was confirmed.

EURUSD Outlook -Politics Run the Show, the Economy Plays Second Fiddle

Recently the Euro managed to climb to 1.209, which is its highest level since early 2015. After the German Elections and the unexpected rise of the extreme right, the Euro lost some of its gains. A Deutsche Bank Asset Management team argues that politics move currencies nowadays, not the economy, nor the interest rate differential. One thing is for sure, the currencies of developed countries are more sensitive to politics than ever.

Currently, the EURUSD pair is trading in a bearish trend that it will lead it probably at 1.148-1.144 (S1), but be aware that the last month of each year is a traditionally a bullish month for the EURUSD. Therefore, we expect the continuation of the bearish trend for a couple of weeks, and after, a strong reversal. Probably that will happen in late November.

EURUSD Technical Analysis and TCI Chart

The following EURUSD chart (D1) includes a TCI chart for the same period (October 2015 - October 2017). The Trading Center Indicator (TCI) is a Technical Indicator developed by TradingCenter. ► More About TCI

Chart: EURUSD (D1) and TCI Chart (2015-2017)

□ Key Support/Demand Level:

S1: 1.148-1.144 | S2: 1.109-1.110 | S3: 1.052-1.058

□ Key Resistance/Supply Level:

R1: 1.188-1.190 | R2: 1.199-1.209 | R3: 1.249-1.252

Macroeconomic Outlook -The Biggest US Monetary Shift since late 2015

The Fed announced it would embark in October the greatest monetary policy shift since the end of 2015. Note that no member of the Fed’s Committee disagreed with this shift. Starting in October 2017, the Federal Reserve begins to shrink its enormous $4.5 trillion balance sheet. The Fed began massively buying bonds in 2013, but now, it will stop reinvesting in some of these bonds as they are closing to maturity. It will start by reducing $10 billion per month in Treasuries and Mortgage Securities. In the future, this amount will increase to $20-30 billion per month.

As concerns interest rates, the Fed anticipates that inflation will remain below its 2.0% target, at least until 2018. That means the increase of US Dollar’s rates will happen smoothly. According to the CME interest rate probability tables, we can conclude to the following forecast regarding the US benchmark rates:

□ 100-125 bps / November 2017
□ 125-150 bps / December 2017 (+25)
□ 150-175 bps / August or September 2018 (+25)

That means one more interest hike in 2017 and two or three interest hikes in 2018. The longer-term target for the Dollar’s rates is now at 2.75%, previously it was 3.00%.

The Global Economic Overheating brings the Global Tapering

According to Citi, the asset market purchases of global central banks will be reduced from $100 billion a month today, to zero by the end of 2018. All the major players are planning to cut their purchases further (the ECB, the Fed, the Bank of England, and the Bank of Japan). Following the Fed’s recent decision, the ECB will probably announce on the 26 October that it will cut its monthly net asset purchases by 5-15 billion euro a month, starting in January 2018. One good reason for this global tapering is that the global economy is ‘overheating’. Citi expects that the world GDP will grow 3.1% per annum in 2017 and 3.3% in 2018. The developed economies are expected to grow by 2.1% in 2017 and 2.2% in 2018. The emerging markets are expected to grow by 4.5% in 2017 and 4.7% in 2018.

EURUSD Statistics (October, November, and December)

Here are the Statistics for EURUSD based on 17.5 years of research by Qexpert:

As it was mentioned before, the last month of each year (December) is a traditionally a bullish month for the EURUSD.

□ OCTOBER: -0.69% Average Returns / 7 times (↑) and 10 times (↓)
□ NOVEMBER -0.04% Average Returns / 8 times (↑) and 9 times (↓)
□ DECEMBER +1.51% Average Returns / 10 times (↑) and 7 times (↓)

 

■ Forex Trading Signals: October-November 2017

George Protonotarios, Financial Analyst » George at Linkedin

for TradingCenter (October, 5th 2017)