EURUSD remains under pressure after 4 weeks of decline

05 Oct 2021

EURUSD closed in the red for the fourth consecutive week last Friday, sending the pair down to 1.15933, a level not seen since July 2020. The fundamentals around the currency pair favour the bear while the technical set-up paints a similar picture. The US Dollar Index (DXY) which measures the strength of the greenback against a basket of major currencies hit the highest level in a year with a reading of 94.5 last Thursday. The spike in the dollar could be attributed to a few factors.

Evergrande Crisis

Firstly, the resurfacing of concerns for the Evergrande situation has sent markets into a risk-off mood which benefits the greenback as a safe haven currency. The heavily indebted Evergrande, which was once China’s biggest developer, is close to defaulting $305 billion in liabilities. On Monday, trading in the company’s shares were halted ahead of its transaction to sell 51% stake in its property management unit to Hopson Development for more than $5 billion. The deal has sparked broader concerns about the risk of contagion, or a serious impact on China’s property sector as well as the global financial system, if the company collapses.

Persistent inflation

Next, the imminent tapering by the US Federal Reserve amid stubborn inflation has provided a boost to the dollar. August Core Personal Consumption Expenditures (CPE) released by the US Bureau of Economic Analysis registered a 3.6% increase over the past 12 months, similar to July 2021, which is a 30-year high. The Personal Consumption Expenditures Price Index (PCE) is regarded as a more accurate measure of inflation than the Consumer Price Index (CPI) as it tracks a broader range of goods and places more weight to substitutions (when consumers buy cheaper products to substitute for more expensive ones). The persistently high inflation figures have led Fed officials to acknowledge that the inflation could remain high well into 2022 because of ongoing shortages of crucial business supplies.

US Nonfarm Payroll

Markets are paying close attention to Nonfarm Payrolls data due this Friday. A reading higher than market consensus of 460K will further cement the likelihood of a tapering announcement by the Fed in November, which is bullish for the US dollar.

Technical Analysis

On the weekly timeframe, the EURUSD extended further losses after failing to retest the neckline of a completed head and shoulders pattern. At the time of analysis, the pair finds support, slightly above the 50% Fibonacci level, after recovering from a dip below the level in the week prior. In terms of technical indicators, the RSI is bearish pointing below 50. The MACD is also showing bearish momentum with the histogram deep in negative region and above its signal line. If the pair slips and closes below the 50% Fibonacci level, the next technical target will be set around 1.1359 which is the 38.2% Fibonacci level. In the alternate scenario when the pair gains strength to the upside, 1.18 will be a strong resistance to watch.

Key events to watch in the coming week:

Tuesday, October 5

USD – Goods and Services Trade Balance (Aug), Markit Services PMI (Sep), ISM Services PMI (Sep)

EUR – ECB’s President Lagarde speech, Eurozone Markit PMI Composite

Wednesday, October 6

EUR – Retail Sales (YoY), (MoM)(Aug)

USD – ADP Employment Change (Sep)

Thursday, October 7

EUR – Germany Industrial Production s.a. (MoM)(Aug), ECB’s Elderson speech, ECB’s Lane speech, ECB Monetary Policy Meeting Accounts, ECB’s Schnabel speech

USD – Initial Jobless Claims (Oct 1), Fed’s Williams speech

Friday, October 8

USD – Nonfarm Payrolls (Sep), Labor Force Participation Rate (Sep), Unemployment Rate (Sep)

EUR – ECB’s Panetta speech

Trade Forex on Phillip MetaTrader 5 (MT5).

Trade Forex at zero commission on Phillip MetaTrader 5, a dynamic platform that offers low spreads. Integrated with Acuity’s Signal Centre and Trading Central Indicators, and available on mobile and desktop app, you will never miss a trading opportunity with Phillip MT5.

Download Trading Central’s Market Buzz for updates on more topics.

What’s more? Phillip MT5 is now supported on Mac OS! To install, simply download the file below and complete a simple installation process.

Free Phillip MT5 Demo Account

Fast and Secure Online Account Opening

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12^th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

Trade in both the bull and the bear markets
The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
Smaller barrier to entry
Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
No expiration date or risk of delivery
Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

More Market Trends

04 Feb 2025

By Eric Lee, Sales Director, Phillip Nova Copper, often referred to as “Dr. Copper,” is renowned for its ability to predict economic trends due to

Client Portal