Euro / Dollar Rate on Course to 1.1030 says Julius Baer

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The Euro to Dollar exchange rate (EUR/USD) has resumed a "broad based" bear market shows analysis from private Swiss bank and wealth manager Julius Baer.

Mensur Pocinci, Head of Technical Analysis at Julius Baer, says he recommends "staying short" on the single currency as a result.

The call comes as EUR/USD presses new multi-month lows at 1.1350, levels last seen in July 2020.

The move lower comes amidst rising Covid cases in the Eurozone which threaten to slow the regions recovery, which contrasts with the more constructive pandemic situation in the U.S. and a reacceleration of the region's economic growth.

"The euro continues its broad-based bear market," says Pocinci, "we recommend staying short the EUR/USD and see further downside potential."

Above: "Euro resumes broad bear market" - Julius Baer.

• EUR/USD reference rates at publication:
  Spot: 1.1334
• High street bank rates (indicative band): 1.0937-1.1017
• Payment specialist rates (indicative band): 1.1232-1.1277
• Find out about specialist rates, here
• Or, set up an exchange rate alert, here

The EUR/USD broke new lows after the release of U.S. retail sales data on November 16 which beat expectations by rising 1.7% month-on-month in October, the market was looking for growth of 1.2%.

This, combined with ongoing labour market improvements and rocketing inflation keeps the door open to 2022 rate hikes at the Federal Reserve, whereas the European Central Bank maintains such a move is only likely towards 2024.

Setting aside the fundamental narratives, the charts are telling Pocinci that the long-term momentum is still in decline and that the longterm consolidation from 2015 remains lacklustre.

"Thus, more likely than not, a retest of the 2020 lows is likely," he says.

The analyst finds the Euro remains weak against all major currencies, and we recommend that investors stay short.

"We find 1.1030 as the next major support and could see a larger consolidation around this round number," says Pocinci.

Foreign exchange strategists at investment bank Morgan Stanley meanwhile say they are maintaining a short position on the Euro against the Dollar, citing rising Covid cases in the Eurozone as one reason.

"There has indeed been a notable drop in the 7d average of daily COVID cases in the US. At the same time, there has been a very strong pickup in COVID cases in Europe over the past few weeks, reaching levels last seen in April this year," says Matthew Hornbach, a global macro strategist at Morgan Stanley.

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He says the prospect of additional lockdowns may seem distant, but quickly rising Covid cases can cause disruptions to economic activity as workers need to self isolate, potentially causing problems with supply chains and labour supply.

"A further acceleration in cases across Europe over the coming weeks would likely raise expectations for further underperformance of the Eurozone economy relative to the US and put downward pressure on EUR/USD," says Hornbach.

Mazen Issa, Senior FX Strategist at TD Securities, expects the ongoing decline in the Euro to extend.

In a recent research briefing he says:

"Next month's ECB meeting will be key, but until then, there is little in the way to stop EURUSD's drip lower and keep the broad USD on its front-foot.

TD securities have warned recently that the U.S. Dollar's tactical setup from seasonal, positioning and valuation had shifted more in its favour.

"With US CPI shattering consensus expectations this, we have the catalyst," says Issa. "We also note that the momentum indicators continue to suggest a drip lower for EURUSD. 1.1420 marks the next support marker but this does not look formidable. Below this, there isn't much in the way of support until 1.13."