C19 continues to depress economic activity in the Eurozone. Q4 2020 was flat and Nomura is forecasting a negative 0.5% for Q12021. Vaccine rollout will help but it is clear economic growth for this year will be below forecast. Fiscal deficits, already 8.5% in 2020, will stay high as states can't withdraw subsidies. The "Recovery Fund" fiscal package agreed last July is facing headwinds in terms of ratification and implementation and more fiscal coordinated action is unlikely. The onus to act falls once again on the ECB with even more QE and, in essence, members debt monetization. With an $8.6 trillion balance sheet, already larger than the Fed's, how long can the ECB continue to buy members' states debt for? Italy and Greece debts respectively at 160 and 205% of Gdp, are beyond restructuring and can only be monetized. Will the more fiscally conservative member states willing to continue on that path? History suggests otherwise and the odds of a shake-up for the Eurozone has never been higher.
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My thesis for the first quarter of 2021 will be for USD to go higher. My main reasoning is higher 10Y treasury yield. Of course the Fed can do YCC to tame it down. My bet is as long as there is no material shock to the S&P, they will allow yield to drift higher, especially after Biden's massive fiscal plan. Let's assume it will pass in some shape, way and form.
My second reasoning is extreme positioning. Tom, Dick and Harry's brother in laws are short of USD. Normally, it reverses when the positioning is this extreme. I wouldn't even be surprised when ECB,BOJ are starting to jawbone their own currency.
As this is my first post, I keep it short and sweet. Any thoughts? feel free to chime in
FYI, I'm not a currency trader but I run charts on a lot of different things.
So I'm writing this from technical analysis point-of-view.
Also my understanding of the macro world and geopolitics is shallow. So, I don't know the intricate relationship between EURO and USD.
I'm a technical trader and I mostly trade options.
I just want to share this.
I know that a lot of people are bullish on USD but be mindful of the trend. Technically USD looks a like penny stock that is on a long decline after a pump and dump.
$DXY popped this week however USD has been riding its bearish momentum for months now and its protectory is still trending lower on all bigger time frames (M,W,D). The shaded green area is where it could potentially find support and also reverse.
EUR has been doing very well since May with a nice uptrend despite having a bearish trend in monthly chart. It has cleared a lot of hurdles along the way during its continuing uptrend but it's inching closer to the 200MA on monthly chart.
Indicators: Moving averages, Squeeze Pro, Trend Oscillator, ATR (14), JT Trend
The DXY or US dollar Index is often brought up as a way to play currency fluctuations, particularly as a "safety trade". In this video, I take a look at how the DXY did in the Corona Panic of Q1, 2020 and how it's done since as compared to some other individual USD pairs available in futures form. As a trend follower, I track all the major USD crosses and don't follow the DXY. I see a benefit in the diversification, and as my video shows. There are extra returns to be had both in risk off, and risk on market regimes looking at individual pairs vs DXY. @Weston Nakamura this seems right up your alley and I'd like to know what you think is the best way to play currencies in risk on/off situations.