The EURUSD Moves To Bullish Territory As Markets Stay Cautious Before US Elections

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Bank of Canada meeting: Cautious, but less than markets expect

The Bank of Canada (BoC) will announce its latest monetary policy decision on Wednesday at 14:00 GMT.

No action is expected, so all eyes will be on the accompanying statement, updated forecasts, and Governor Poloz’s tone. Markets seem to expect an overly dovish message, and while the Bank is indeed likely to appear cautious overall, it is unlikely to go as far as abandon its rate-hike plans completely – which generates an upside risk for the loonie.

The Canadian economy hit a soft patch in recent months, with wage growth slowing and house prices declining, which spells bad news for home-owning consumers. The BoC’s own business survey for Q1 was also downbeat, with the headline index dipping into negative territory, indicating that firms are growing pessimistic.

In this environment, market expectations for rate increases by the Bank of Canada evaporated, giving way to speculation for rate cuts. A quarter-point rate cut by December is now priced in with a

30% probability. Yet, the loonie has been consolidating lately, trading sideways against the dollar as the gloom in the rates market was offset by a surge in oil prices – Canada’s biggest export.

This brings us to this week’s meeting. Markets seem to expect Poloz and his colleagues to strike a much more cautious tone, possibly by removing any surviving reference to rate hikes and effectively shifting to a neutral bias. Such a shift would probably reinforce expectations that the next move in rates will be lower, and potentially weigh on the loonie.

However, it may be too early for such a change. Policymakers are indeed likely to communicate a more cautious message, but it could be a touch less dovish than markets expect. They may not go as far as take rate hikes completely off the table. For one, the sustained surge in oil prices paints a much brighter picture for the nation’s energy sector. Meanwhile, the latest CPI data showed underlying inflation picking up, which provides a ray of hope. Separately, the officials already recalibrated their policy bias at the last meeting, so they may want to retain some optionality in case the economy does rebound, like the Fed has.

In brief, markets expect an overly-dovish Bank of Canada, and although recent developments haven’t been encouraging, they also haven’t been terrible enough to warrant another substantial shift in guidance. Perhaps more dovishness ‘on the edges’, but not abandoning hikes altogether.

As for the loonie, if this assessment proves accurate, the currency could soar. Not so much due to any massive change in the outlook for monetary policy but rather because with the risk of a dovish BoC out of the way, traders will have one less thing to worry about when adding to their long-loonie exposure, and the currency could finally play catch-up with the oil rally.

Technically, declines in dollar/loonie could encounter a first wave of support around 1.3270, marked by the April 17 low.

On the flipside, resistance to advances may come near 1.3400, a level that capped multiple bullish moves in April.

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by Marios Hadjikyriacos, XM Investment Research Desk

Marios graduated from the University of Reading in 2020 with a BSc in Economics and Econometrics.

Prior to joining XM as an Investment Analyst in December 2020, he was providing financial analysis, reporting and consulting services to one of the largest financial services firms in Cyprus. He specializes in identifying and forecasting trends in the foreign exchange, commodity, and equity markets, predominantly through the utilization of fundamental analysis.

Besides being an active commentator in financial markets, Marios is a keen follower of economic literature as it relates to moral issues, while he is also intrigued by developments in the field of behavioral finance.

EURUSD Next Stop: Parity

In “EURUSD, Well Done. Now What?”, published on August 24th, we suggested “the euro might climb to 1.16, before the bears return.” As it turned out, EURUSD not only reached, but even exceeded this target. The pair climbed as high as 1.1713. Nevertheless, the Elliott Wave Principle has been warning us to expect a bearish reversal soon. That is why we were more than pleased, when EURUSD started declining. On September 3rd, the exchange rate fell to 1.1087. As visible, the entire price action since the middle of March has been developing between the parallel lines of a channel, which is likely to be corrective. The W)-X)-Y) double zig-zag correction appears to be over, which means the larger downtrend is in progress once again. In order to confirm this assumption, let’s take a closer look at EURUSD’s behavior during the last month. According to the theory, a five-wave impulsive decline, followed by a three-wave recovery, means we should expect the euro to weaken against the US dollar from now on. Furthermore, wave (2) seems to have ended near the 61.8% Fibonacci level, which is where corrections often terminate. If this analysis is correct, EURUSD might plunge to a new low, below 1.0460. Do not be surprised, if the pair reaches parity in the months ahead.

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EUR/USD Bullish Reversal Towards 23 Percent Fibonacci Level

EURUSD Bullish Reversal Towards 23% Fibonacci Level

On Friday we saw early signs of a EURUSD bullish reversal on the forex dance floor. Is this reversal here to stay? Should you be bullish or bearish on the pair now? Read on for an IDDA (75% OFF for Cyber Monday!) approach. As well as different scenarios that you can trade the pair in a medium and long basis.

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Technical Analysis | EURUSD Bullish Reversal

Daily Chart: The EUR/USD pair confirmed a bullish reversal first thing during the Monday’s Sydney session after reaching the very strong support of 1.0515. It formed an Evening Star Candlestick pattern.

We were expecting a correction at this point because, hey, what goes down, must go back up. However, it is important to remember that the pair remains below the Ichimoku cloud. Also, we don’t really have any more technical signals other than the evening star and the strong support.

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Monthly Chart: The pair remains under the massive Ichimoku cloud on the monthly chart. It has continued ranging between 105 – 115 since January 2020; nearly two years now. The range has remain strong even through the craziest of global risk events including Brexit and US elections in 2020. So we are still looking for the range to continue unless the pair breaks below 105 . Say on a US interest rate hike.

Fundamentals | EURUSD Bullish Reversal

We have mostly a light economic calendar today especially during the Asian and London sessions. ECB’s Draghi is due to speak at European Parliament in Brussels at 2 PM GMT. His remarks should includeeconomic and monetary developments and the consequences of the Brexit. This could create a bit of a volatility in the EUR crosses, helping short-term traders reach target.

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We have yet another NFP Friday coming up. And this NFP Friday happens to be the last NFP Friday before the December FOMC meeting. The anticipation of these events could create enough volatility for the EURUSD to reach short term to medium term bullish targets before heading back down.

Market Sentiment | EURUSD Bullish Reversal

Fundamentally speaking, there is no clear reason for the recent EURUSD bullish reversal. So this is all on the shoulders of market participants profit-taking after two weeks of strength.

Trading Strategy | EURUSD Bullish Reversal

Putting the technical, fundamental and sentimental points of the IDDA approach together, we can settle on a short term to medium term trading strategy for now. Please visit out Premium Facebook Group for detailed strategy.

As always, when in doubt, book a private session with me to get your portfolio on track.

Here are Invest Diva’s calculations for important EUR/USD approximate levels to keep an eye on:

Support Levels Turning Point Resistance Levels
1.0490 1.0665 1.0830
1.0515 1.0750 1.09

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Kiana Danial

Kiana Danial is an award-winning, internationally recognized personal investing and wealth management expert. She is a highly sought-after professional speaker, author and executive coach who delivers inspirational workshops and seminars to corporations, universities and entrepreneurial groups. She is a frequent expert on many TV and radio stations and has reported on the financial markets directly from the floor of NYSE and Nasdaq. She is a weekly investment expert guest on Tokyo’s #1 Investment TV Show. She has been featured in The Wall Street Journal, TIME Magazine, CNN, Forbes, The Street, and numerous other publications. Kiana’s book “Invest Diva’s Guide to Making Money in Forex” was picked by McGraw-Hill only two years after she first moved to the US, and was an immediate domestic and international success. At a young age, she has won numerous awards including Best Financial Education Provider at Shanghai Forex Expo in 2020, New York Business Women of Influence Honoree in 2020, and Pro Bono Humanitarian Award by IA Bar Association in 2020. Born and raised in Iran to a Jewish family as a religious minority, she was awarded a scholarship from the Japanese government to study Electrical Engineering in Japan, where she obtained two degrees in Electrical Engineering and researched on Quantum Physics in classes conducted in the Japanese language. Being the only girl and foreigner in her classes made her decide to dedicate her life to empowering minorities, especially women in male dominated industries. As the CEO of Invest Diva, Kiana’s goal is to empower and educate women to grow their wealth by investing like a ROCK STAR.

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