Go short on EURUSD as dollar gains strength

The EURUSD pair is feeling the heat for the second day running, sliding as the American dollar holds firm. At the heart of this dynamic lies the growing anticipation that the Federal Reserve (Fed) is about to turn hawkish. 

Where is this sentiment coming from? Disruptions in the energy market are still rattling the backdrop, threatening to feed into core consumer prices and lift inflation expectations. Make no mistake—this risk alone could be enough to keep the regulator in tightening mode. However, it is not the only factor. At the same time, a sunnier US growth outlook is adding fuel to the fire, giving the greenback another reason to stay bid. 

Fed officials are treading carefully when it comes to adjusting short-term interest rates. The headline is the same, though the undertone is shifting. While borrowing costs remain unchanged for now, policymakers are quietly moving away from the idea of monetary easing and leaning toward rate hikes if inflation refuses to budge. And this is not the only development on the central bank front. There is also a change of the guard. Today at the White House, US President Donald Trump is set to swear in Kevin Warsh as the new Federal Reserve Chairman. He will replace Jerome Powell, whose term expired last Friday but who has stayed in office during the transition.

Turning to the labor market, numbers tell a mixed yet still sturdy story. On the positive side, initial jobless applications dipped by 3,000 to 209,000 in mid-May, underscoring sustained resilience. On the other hand, continuing claims edged up to 1.782 million for the week ending May 9, up from 1.776 million seven days earlier.

Now, look across the Atlantic. The euro is struggling to keep its head above water, as traders react to an unexpected contraction in the eurozone economy. According to preliminary Purchasing Managers' Index (PMI) data released Thursday by S&P Global, the region saw its swiftest decline since late 2023 in May. One may ask: what is driving the downturn? Rising living costs tied to the Middle East conflict have weighed on service sector demand, pushing inflation to a three-year high.

So, where do we go from here? All eyes are now on Germany. Up next are the GfK consumer confidence survey for June, first-quarter GDP, and the Ifo business activity index. These releases could set the tone for the next leg lower.

The ultimate recommendation is to sell EURUSD. Place Take Profit at 1.14445. Set Stop Loss at 1.1745. 

Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow entering a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.