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Home ANALYSIS

EURUSD steady to start the trading week

A.R Chowdhury by A.R Chowdhury
March 20, 2022
Reading Time: 7 mins read
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EURUSD steady to start the trading week

EURUSD

EURUSD off to a quiet start with a bullish bias

The  EURUSD 
EUR/USD

The EUR/USD is the currency pair encompassing the European Union’s single currency, the euro (symbol €, code EUR), and the dollar of the United States (symbol $, code USD). The pair’s rate indicates how many euros are needed in order to purchase one dollar. For example, when the EUR/USD is trading at 1.2, it means 1 euro is equivalent to 1.2 dollars.  Why the EUR/USD is the Most Popular Trading PairCompared to all tradable currencies, the euro (EUR) is the world’s second most traded currency, behind only the US dollar. This currency pair is the most traded and liquid currency pair on the market.As the most popular trading pair, the EUR/USD is a staple of every brokerage offering and often has some of the lowest spreads relative to other pairs. Ultimately, the currency follows the two most economic blocs in the world and sees the most volume for this reason.The EUR/USD has a wide range of factors that influence its rates. From the EUR side, economic data in the Eurozone as well as internal factors in the bloc can easily impact rates. Even small member states can effectively weigh on the EUR, as seen in Greece during bailout talks in the 2010s. Alternatively, developments in the United States and the Federal Reserve commonly affect the EUR/USD. Many examples include the bailouts during the Financial crisis, tax cuts during the Trump Administration, and Covid-19 relief measures, among others.

The EUR/USD is the currency pair encompassing the European Union’s single currency, the euro (symbol €, code EUR), and the dollar of the United States (symbol $, code USD). The pair’s rate indicates how many euros are needed in order to purchase one dollar. For example, when the EUR/USD is trading at 1.2, it means 1 euro is equivalent to 1.2 dollars.  Why the EUR/USD is the Most Popular Trading PairCompared to all tradable currencies, the euro (EUR) is the world’s second most traded currency, behind only the US dollar. This currency pair is the most traded and liquid currency pair on the market.As the most popular trading pair, the EUR/USD is a staple of every brokerage offering and often has some of the lowest spreads relative to other pairs. Ultimately, the currency follows the two most economic blocs in the world and sees the most volume for this reason.The EUR/USD has a wide range of factors that influence its rates. From the EUR side, economic data in the Eurozone as well as internal factors in the bloc can easily impact rates. Even small member states can effectively weigh on the EUR, as seen in Greece during bailout talks in the 2010s. Alternatively, developments in the United States and the Federal Reserve commonly affect the EUR/USD. Many examples include the bailouts during the Financial crisis, tax cuts during the Trump Administration, and Covid-19 relief measures, among others.
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is steady vs the Friday close. The pair is currently trading at 1.1051.

Looking at the hourly chart, the pair moved up to test the March high on Thursday of last week, but fell short of that target. The high for the week of reached 1.11369 which was just short of the March 2 high at 1.11429.

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The subsequent fall on Friday saw the pair test and crack below the 100 hour moving average (blue line in the chart above – currently at 1.1018), but fall short of the 200 hour moving average (green line). The 200 hour MA is currently at 1.0998 just below the natural support at 1.1000. The price corrected higher into the close on Friday.

Of note technically from last week, is the price moved back above its 200 hour moving average (green line)on Wednesday and based against that moving average level at the lows on that day. The dip on Friday also stayed above that MA at the session lows.

As a result, the buyers are still in play – and in control – in the short term above those MA levels. It would take a move below the 100 hour MA at 1.1018 currently and the 200 hour MA at 1.0998 (and below the natural support at 1.1000) to shift the bias more in favor of the sellers. Until then, the tilt of the bias is in the buyers favor.

Topside targets would include the 38.2% of the move down from February 10 high at 1.10684. Above that and traders will eye 1.1106 to 1.11207, and then the highs for the month between 1.11369 and 1.11429.

Fundamentally over the weekend, ECB de Guindos told German newspaper Handelsblatt, that the ECB would take action if it sees second-round  inflation 
Inflation

Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.

Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
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effects, and eight the anchoring of medium-term inflation expectations.

When asked about the risks to the European financial system due to the war in Ukraine, de Guindos said:

  • There were no liquidity bottlenecks, companies were issuing bonds, and that stocks were volatile but without dramatic developments.
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A.R Chowdhury

A.R Chowdhury

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