EUR/USD: forecast for November 16-22
EUR/USD remained under bearish pressure, but found some support just below 1.0700 as investors’ risk sentiment was not very bright, and demand for lower-yielding euro increased in comparison with the demand for the US dollar.
The European Central Bank remains ready to ease policy in the near future. The ECB president Mario Draghi claimed that the stronger euro accounts for the euro area’s weak inflation outlook. Next week Draghi will speak 2 more times – on Monday and Friday. As the regulator’s head has so far been dovish, we think that he will continue stick to this line, so his speeches represent bearish risks for the euro. German economic growth has slowed a bit in Q3. The same happened with euro area’s economy. The news are moderately negative.
Apart from Draghi’s speeches next week pay attention to the euro area’s final October inflation on Monday and ZEW economic sentiment for Germany and the euro area on Tuesday. Data from the US will be also important for the pair.
Large speculators significantly increased net shorts on the euro in the recent weeks, the market has become more bearish, and so the risk of an abrupt short covering is now higher. Still, levels of 1.0900/50 – former support line of 2015 – represent strong resistance for the single currency, and once reached will provoke a new wave of selling. Support is at 1.0700, 1.0660, 1.0600 and 1.0520. As, for now, we have probably already seen the most of the pair’s decline on monetary divergence between the US and the euro area, the pace of decline will likely slow down and EUR/USD has some grounds to stabilize and consolidate a bit.