The EURUSD pair managed to bounce up by more than 4% from its low of 1.03489 on May 13. But it wasn't a reason for the downtrend to be broken, on the contrary, the “bears” took a break and again bet on the fall of the euro against the U.S. dollar.
Attempts of the EURUSD pair to grow were primarily related to the ECB meeting, which took place on June 9. There are practically no arguments left in favor of an ultra-expansionary monetary policy, which has been carried out in Europe for more than 10 years. And market participants expected that the European regulator would be decisive in the fight against record inflation rate in decades.
Technically, the ECB has indeed expressed its readiness to tighten the policy: The asset purchase under the APP program will be completed on July 1, and at the meeting on July 21, the key rate should be raised by 0.25% from the current zero level. Further rate hikes are also expected at the autumn meetings.
However, according to market expectations, tougher steps to normalize monetary policy were supposed to be taken, such as an increase in the key rate by 0.5%, and the Fed will do it at the meetings on June 15 and July 27. The interest rate differential will continue to benefit EURUSD reduction in the near future.
Today's statistics on inflation in the U.S. for May will be important for the dynamics of the dollar. The rate of price growth is projected to remain at the level of 8.3% estimated in April. However, even the release of data on inflation that corresponded to forecasts led to a fall of EURUSD in recent months. If the statistics show an acceleration in price growth, the dollar can quickly ride a new wave of growth.
Yesterday's “bearish engulfing” and a bound down from the trend line have opened the EURUSD the way to the level of 1.05. A new entry to five-year lows is also possible, but we will know the reason no earlier than the Fed meeting on Wednesday, June 15.
The following trading strategy is possible:
Sell EURUSD at the current price. Take profit – 1,05. Stop loss – 1,07.
Traders also can use at their own will a Trailing stop instead of a fixated Stop loss.