EUR Finally Enters Correctional Phase
For a long time, the US dollar has been extremely overbought. It puts investors on guard. Yet, the greenback continued to extend gains, escaping a correction as there were no reasons for it. Macroeconomic statistics for the US were quite positive, while the EU unveiled rather dismal economic data. However, on Friday, a long-awaited correction eventually took place. Remarkably, the correction occurred naturally as there were no economic reports on that day. On Monday, the macroeconomic calendar also remains empty. So, the reason was the statements of the Fed’s official. Minneapolis Federal Reserve President Neel Kashkari said the regulator should receive some more strong jobs reports in the coming months in order to shut down its bond-buying program. Notably, the Fed is planning to hike the interest rate as well as reduce its quantitative easing program by the middle of next year. Currently, asset purchases are the main engine for the growth of US stock indices. The central bank will discuss this issue one more time at the end of this year. After the Fed made such an announcement, a wave of panic swept over market participants. They began to fear a catastrophic decline in markets and the subsequent deepest economic crisis.Luckily, one of the main speakers of the Federal Reserve System calmed traders, hinting that considering the issue does not yet mean making a specific decision. After all, the US labor market is showing signs of a robust recovery. At least, the latest report of the United States Department of Labor revealed an impressive drop in the unemployment rate. Yet, according to Neil Kashkari, this is not enough to taper the bond-buying program.This is why the regulator will continue to inject money into the economy to support its steady revival as well as financial markets. In other words, the Fed will continue to print money. As follows from the law of supply and demand, if the quantity of a product does not decrease, then it can grow in price only because of an increase in demand. At the same time, the potential for further growth is declining. This was the reason for a jump in the euro, or to be precise the reason for the long-awaited correction.
The EUR/USD pair moved from the range of 1.1725/1.1755 to a technical correction. This scenario was widely expected when the pair reached a strong pivot point of 1.1700.
During the correction, the quote rose to the level of 1.1800 where the intersection with the Fibonacci level of 50.0 took place. This was a signal to reduce the volume of long positions, which held back the upward movement.Judging by RSI (Relative Strength Index), there is an intersection of the level of 70 from top to bottom, which indicates that the euro is overbought.
Investors are expecting the completion of the correction based on the signals of technical analysis. An increase in the volume of short positions is possible if the price consolidates below the Fibonacci level of 38.2-1.1880. If so, it may drop to the level of 1.1700.So, technical analysis signals short positions based on short-term and intraday charts.