The EURUSD currency pair saw a strong rise of 7.7% over the past 2 weeks. It went up from 0.973 to 1.048. After that the growth began to slow down and EURUSD corrected for a while. Nevertheless, the scale of the pullback after such an ascent impulse is quite small, and we can expect the dollar to rise more sharply against the euro in the near term.
As a matter of fact, the entire EURUSD surge was fueled by the dollar weakness, rather than any significant improvements on the euro prospects. In addition to this, ECB officials already foresee a scenario of slowing US inflation rate for European countries, thinking about slowing its aggressive rate-hike pace in December.
Despite relatively good data on industrial production, GDP and trade balance, the outlook for both the European economy and the common European currency for the end of the year and the beginning of 2023 is very unclear. Consequently, movement of the US currency is determining in the euro-dollar pair.
The dollar decline paused on Wednesday, after October retail sales figures were released. Retail sales in the US in October surged 1.3%, which exceeded the forecast of 1%. It renewed concerns about more aggressive tightening path. US regulator officials, while agreeing on the rate hike of 0.5% instead of 0.75%, may now extend the cycle of rate hikes and stick with higher peak rate for quite some time after it comes to an end.
According to the chart, Stochastic indicator reversed from the overbought zone, with its lines crossing, which confirmed a EURUSD sell signal. The nearest targets can be considered the Fibonacci retracement levels of 23.6% (1,026) and 38.2% (1,012). It will be hard for EURUSD to be back to the parity level, given that the dollar index has dropped below its long-term upward trend and the euro has a share of over 50% in this index.
The following trading option can be suggested:
Sell EURUSD in the range of 1.035-1.04. Take profit 1 – 1,026. Take profit 2 – 1,012. Stop loss – 1,044.
Traders may use a Trailing stop instead of a fixed Stop loss at their discretion.