The baseline scenario for EURUSD is now moderately bearish. The pair has already slid to the 1.1370–1.1375 range, reaching a two-month low. In just over a week, the dollar gained more than 1%, leaving EURUSD little choice but to record a third consecutive weekly loss. What triggered this decline? A sudden shift in the Federal Reserve’s monetary trajectory and the subsequent rise in US Treasury yields.
The Fed-ECB policy divergence is the pair’s key driver. After a recent hike, the American regulator keeps maintaining its hawkish stance, with some officials—such as John Williams—anticipating another increase by year-end. This environment favors the dollar. Bond yields are also supported by current conditions, flying near peak levels. Meanwhile, market participants are now actively reassessing their forecasts regarding the Fed’s future monetary path.
In Europe, the situation is more complicated. The European Central Bank has also shifted toward tightening, raising its deposit rate to 2.50%. However, its decision was not as severe as the Fed’s. Consequently, the ECB’s hike alone was unable to offset the greenback’s advantage. Moreover, the bloc’s economy is more sensitive to energy shocks, creating both an inflation problem and a risk of weaker growth.
Thus, over the next two weeks, the fundamental balance remains in favor of the dollar, though there is a chance of a short-term rebound given that the pair is technically stretched to the downside.
The overall recommendation is to sell EURUSD. Profits should be taken at 1.1200. Stop Loss could be set at 1.1530.
The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
