The next is worse the euro's downward journey is not over and the dollar is outperforming in this case

The next is worse the euro's downward journey is not over and the dollar is outperforming in this case

Today, we will share our technical view on the developments in the Euro and the Dollar.

What are the future prospects on the dollar side?

Inflation, which is the main determinant of pricing and its associated outcomes, i.e. both growth and interest rate policy, is cyclically fluctuating according to the data. The US entry into recession has been priced negatively. Subsequently, good employment supported the view of political and economic actors in their rejection of stagnation.

After that, it was thought that we shouldn't be too scared when inflation goes back a little bit from the peak. During this process, and in the past few weeks, the dollar weakened and indices rose. But the situation changed this week.

The dollar index is rising again

The US dollar index maintained its temporary support level at 105 and the index approached $107 again this week, erasing its losses. The reason why the dollar stopped falling last week and rose again was the problems in other major economies such as China, England and the Eurozone.

pressure on the euro

Inflation in the USA, the Eurozone and the UK has reached its highest level in many years. The Bank of England appeared not to be optimistic about inflation, but was expecting a recession.

Although second-quarter growth in the Eurozone was better than expected, the second half of the year, and especially the last quarter, carries a lot of risks for the region. The biggest reason for this is the energy conflict with Russia.

Growth slowed in Germany, which has been the region's best economy in years, and investor optimism waned. The Zew index reached a 14-year low. In addition, since the increased costs in the winter will have a greater impact on the consumer, inflation can also remain high.

Another problem is that if Germany and Russia cannot agree on the energy flow issue, just as they did in the second quarter, lower production, lower exports and stagnant sectors could deepen the economic downturn. The discontent in Germany is also having a huge impact on the euro.

Inflation in China reached its levels during the epidemic, but China's main concern is how to prevent the sudden burst of the bubble that has formed in the property market. China, which injected liquidity into the sector last year, is now keeping interest rates low so that the sector can survive.

But the situation is not so good in the rest of the sectors, from industry to retail. Brent Crude actually reacted to these negative expectations, declining by 5% yesterday.

The situation in the US economy is bad, but the problems in Europe are more complex. The problems of many countries with different dynamics are increasing.

pressure on the euro

Inflation in the USA, the Eurozone and the UK has reached its highest level in many years. The Bank of England appeared not to be optimistic about inflation, but was expecting a recession.

Although second-quarter growth in the Eurozone was better than expected, the second half of the year, and especially the last quarter, carries a lot of risks for the region. The biggest reason for this is the energy conflict with Russia.

Growth slowed in Germany, which has been the region's best economy in years, and investor optimism waned. The Zew index reached a 14-year low. In addition, since the increased costs in the winter will have a greater impact on the consumer, inflation can also remain high.

Another problem is that if Germany and Russia cannot agree on the energy flow issue, just as they did in the second quarter, lower production, lower exports and stagnant sectors could deepen the economic downturn. The discontent in Germany is also having a huge impact on the euro.

Inflation in China reached its levels during the epidemic, but China's main concern is how to prevent the sudden burst of the bubble that has formed in the property market. China, which injected liquidity into the sector last year, is now keeping interest rates low so that the sector can survive.

But the situation is not so good in the rest of the sectors, from industry to retail. Brent Crude actually reacted to these negative expectations, declining by 5% yesterday.

The situation in the US economy is bad, but the problems in Europe are more complex. The problems of many countries with different dynamics are increasing.

Importance of the FOMC meeting minutes

The Federal Reserve raised interest rates by 75 basis points in both June and July, entering the economy into its most aggressive interest rate period in more than 30 years.

Markets raised odds of a 50bp rate hike after good jobs data and lower employment. But there is an idea now circulating: if the employment sector is doing well, the Fed may continue its steps ahead of the market to accelerate the decline in inflation.

At the July meeting, although Powell said they were determined to fight inflation, it was clear that they were afraid of a slowdown in growth. However, what needs to be done is clear, inflation must fall first, then growth must be supported. Other than that, growth is meaningless. With this correct logic, the July Fed minutes are expected to be hawkish.

The decline of the euro / dollar may accelerate

Before moving on to the outlook for the pair, we find it useful to take a look at the long and short term outlook on the dollar index.

The first chart is the post-2008 movement, ie in the long term. As we can see, the uptrend is strong and the price is moving towards the upper band of the channel. When we look at the longer term trend, our main target is $113. On the way to this level, it is very important to protect level 97.50.

What are the important levels in the 97.50-113 range?

In our previous analysis, we mentioned that we are heading towards the 103.50 level, above 97.50. We protect our opinion. If temporary support at 103.50 is maintained, buying may continue towards 108.50 in the short term.

The pair may retest the level below 1

Again, it is more correct to look at the pair for the long term. The downward force of the trend continues. However, when assessing the situation in the short term, the pair was unable to maintain first the 1.0760 level, then 1.0370. The price, which gradually declined below these resistances, has fallen towards the 1.01 level today.

In the coming period, there will be volatility due to the comments of the Federal Reserve officials, the data of the Euro, the dollar and the global outlook may hover in the range of 1.0370-0.9650. Our expectations are to continue the decline and test the intermediate support level 0.9950 first. Also, 0.9650 is a strong support, which we find important for the rest of the year.