FX.co ★ EUR/USD analysis and forecast on November 17, 2021

US dollar strengthens against the euro

Some of the world's major central banks have already started to tighten their monetary policy and under favorable conditions may raise the federal funds rate once or even twice next year. However, not everyone is following the trend in monetary policy, which is usually set by the Fed. The example of the European Central Bank (ECB) is a case in point. Its president Christine Lagarde has a distinctly dovish tone. Recently, in one of her many speeches, Lagarde made it clear that the key interest rate is unlikely to be raised in 2022. The only thing the ECB has managed to do is to reduce its quantitative easing program from the 4th quarter of this year.

This difference in approach to monetary policy between the Fed and the ECB is not unexpected news. After the COVID-19 pandemic began, it was the US Central Bank that was the first to stimulate its national economy. The ECB got involved later and less decisively than its US counterpart in supporting the euro area economy. On this basis, there was a high probability that the Fed would start the rate hike process earlier than the ECB. If this is the case, the US dollar will have an undeniable advantage over the European currency. This is what is already happening now. Markets are already pricing in a more hawkish Fed stance, with the consequence that the US dollar continues to strengthen against the euro.

Daily

In yesterday's trading, the main Forex currency pair continued its downward scenario. The low of the November 16 session was shown at the technical level of 1.1310, from which there was a small rebound. Tuesday's trading ended at 1.1317. Today the bears continued the pressure and dropped the rate to 1.1264. However, there was a bounce later from this level. As a result, the EUR/USD is trading near 1.1319. It is likely that after such a strong decline, a lot will depend on the final shape of today's candle and its closing price. If the candlestick at least retains its current form (with a long lower shadow), it can be considered as a reversal pattern of the candlestick analysis and we can get ready for a corrective pullback. However, it is too early to expect a complete reversal.

H1

On the hourly chart, an additional signal that confirms the probability of a corrective pullback is the bullish divergence of the MACD indicator. This indicates that the euro/dollar is oversold. Nevertheless, selling remains the main trading idea, except that opening them at the bottom of the market is not really justified and rather risky. Sooner or later the pair will make a corrective pullback. The main thing is not to get on it and not to fall into a deposit drawdown. Therefore, it is better to wait for the pair to rebound to 1.1345, 1.1365 and possibly 1.1385. If bearish reversal patterns appear on this or the 4h chart near those levels, that would be a signal to open a sell trade. As for today's macroeconomic reports, it is advisable to pay attention to the Eurozone consumer price index. Data on the number of new housing starts as well as building permits in the US will be published today.