CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

The contrarian case for a EUR/USD rally if rates can break above 1.00

Article By: ,  Head of Market Research
October 18, 2022 6:42 PM

It’s not particularly hard to make a bearish case for the European economy, especially relative to the US – heck, I’ve done it myself numerous times over the last few weeks!

Between a war in its backyard, energy shortages, and an imminent economic recession, it would be hard for the outlook for the Eurozone to look much darker. But, as theologian Thomas Fuller first noted nearly 400 years ago, the night is darkest just before the dawn. The mere fact that the Eurozone’s headwinds are so apparent and well-known suggests that there’s at least a chance that they’re already factored into the current market prices.

Meanwhile, traders are pricing in a terminal Fed Funds rate of nearly 5.0% for next year, and it would take a concerted chorus of hawkish comments from the Fed to raise that projection further in the near term. With the month’s major US data (NFP and CPI) behind us, the market may shift its attention elsewhere over the next two weeks, potentially leading to consolidation or a correction in the greenback.

If we do see a counter-trend rally in the world’s most widely-traded currency pair, the key area to watch will be in the 0.9950-1.0000 zone, where the top of the bearish channel, the declining 50-day EMA, and key psychological resistance at parity all converge. If we do see a break above that key resistance confluence, it would confirm a higher low and higher high on the daily chart for the first time in 18 months and point toward an extended bounce toward the mid-September highs near 1.0200 or even previous-support-turned-resistance in the 1.0350 area.

Source: TradingView, StoneX

Of course, the more logical (and likely more probable) outcome is that the EUR/USD bounce peters out quickly, as previous bounces have consistently for the past 18 months, and the single currency continues its relentless march lower as we march toward November.

Nonetheless it’s worth at least considering alternative ways that the future could play out. As author F Scott Fitzgerald famously quipped, "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    • Open an account in the UK
    • Open an account in Australia
    • Open an account in Singapore

  2. Search for the market you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024