The euro is again cheaper than the dollar - for how long this time?

26 August 2022 200
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As expected, the EURUSD pair has completed its monthly growth near the medium-term downtrend line. A new wave of decline has begun, as a result of which the euro again has become cheaper than the dollar. In July, when the EURUSD pair fell below parity for the first time in 20 years, it was not possible to stay at the lows reached for a long time. How will it be this time?

 

The reason for the return of the dollar to growth was the comments of the Fed officials, who did not attach much importance to the July slowdown in inflation from 9.1% to 8.5%. There was a need for further tightening of monetary policy. And even when the rate hike cycle ends (probably at the end of this year or early next year), tight lending terms could persist for a long time.

 

Today, Fed Chair Jerome Powell will speak at the annual conference in Jackson Hole, with having the opportunity to confirm the words of his colleagues. Considering that the most important statistics on the American economy will be published already in September (on the labor market - on Sept. 2, on inflation - on Sept. 13), now Powell has no prerequisites for a significant change in his position. However, the volatility in the currency market will definitely increase during the speech of the head of the Fed, which could create interesting opportunities for traders.

 

For the euro, nothing has fundamentally changed - it remains weak, and in the EURUSD pair, the initiative is completely on the side of the American currency. Some growth of the European currency paired with the dollar may occasionally occur, but the main downtrend will continue in the near future.

 

In the short term, today's speech by the head of the Fed will be of key importance for the dynamics of the EURUSD pair. It is better for more cautious traders to act after the end of J. Powell's speech, while expectations, regardless of the results of the conference in Jackson Hole, are reduced to a further decrease in the EURUSD pair. The nearest target is the previous local low of 0.99.

 

 

The following trading strategy can be offered:

 

Sell EURUSD when parity level 1 is reached. Take profit – 0.99. Stop loss - 1.005.  


Also, a Trailing stop can be used instead of a fixed Stop loss at the discretion of traders.

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