Michael Kopanakis head of brokerage at SquaredDirect
Michael Kopanakis head of brokerage at SquaredDirect

USD gradual strength going into the fourth quarter

Leading up to the July 2019 analysis we witnessed the EUR/USD pair gradually climb to the 1.1412 level and reach a peak, as predicted, since this period in the middle of the year the “bears” seem to have turned the tables and taken control of the trend throughout Q3. Looking forward to Q4 will this Dollar strength be able to hold up against forces of future potential FED rate cuts?

First Published: e-Forex Magazine 88 / Currency Clips / September 2019

On July 31st, the FED decreased the interest rate from 2.5% to 2.25%. This was the first rate cut since the 2008 financial crisis. The natural reaction for this rate cut would be a decrease in the value of the greenback causing the pair to rise, although this has not been the case. The pair has continued to follow a downward trend. This may be a result of fear of a potential recession in the public eye, as a reason for the rate cut. 

The leaders of the G7 countries recently met at the 45th G7 summit in France, and the host on behalf of the other member states has released a request for the WTO to enforce reforms. In July France passed a tax of 3% on the 30 big tech companies. President Trump saw this as targeting US Tech firms and threatened to tax French wine in return. If a trade war sparks between the EU and the US then we will see vast volatility in the EURUSD pair. 

Within this year the USA could expand the volume of Oil they are exporting per day, from 3 to 4 million barrels a day, following this with another increase in output of 1 million per day in 2020. By adding together the amount of oil and gas the US will be producing we can see that it is the largest energy producer globally. This will crystalize the US dollar’s future as the global reserve currency of the world. This fortification of the dollar may prove to put pressure on the EURUSD pair in the downward direction in the long-term.

Opening Q3 at 1.1363 the price is following a downwards channel and managed to break below the key support and psychological area of 1.12-1.1150, which is also the 61.8% Fibonacci retracement level of the upward move that started at November 2016 and ended at March 2018. 

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A possible break below 1.09 would be a big win for Bears and would open the road 2016 low levels of 1.05-1.04. Taking into consideration all current news and trade wars affecting the USD strength in the future, the EUR could in short term gain some ground and we may see the pair start to move up to around the 1.120-1.1250 area where there is a visible level of resistance on the Daily chart. 

That fight would be very critical for the upcoming price movement.

This bounce up of the pair will be validated after the FED decision regarding the interest rate cut in the US, depending on the size of the cut and on the psychological view of traders for the reasons behind it. It will most likely determine the short-term future of the EUR/USD pair.