The EURUSD pair hit a new record of 1.073 at the beginning of July before the ECB meeting. When the European regulator predictably raised the interest rates by 0.5%, the market participants followed the well–known proverb “buy the rumor, sell the fact” and started to take profit received from the euro growth for the last weeks.
It was the profit-taking that might provoke the fall of EURUSD based on yesterday’s trade, as the ECB meetings themselves are the “bullish” factor for the European currency. Rate hikes effectuated by a moderate pace (0.5% instead of 0.75%) were compensated by an expected increase next year and the beginning of a quantitative tightening program in March.
Despite the obvious signs of recession, ECB continues to tighten the policy, and the euro benefits from this. But taking into account the 13% growth of EURUSD since the end of September and the absence of significant correction from early November, investors highly likely prefer to put money in dollar assets before Christmas and New Year holidays.
Yields of dollar assets have seriously decreased while everyone was expecting the Fed to end the cycle of tightening. And even very “hawkish” comments of FED Chair Jerome Powell made after the meeting on December 14 couldn’t significantly change the balance of forces in the market: it expects a decrease in rate in the second half of 2023. And even if the market optimism starts to disappear, it will be another factor in favor of a strong dollar.
As the medium-term uptrend for EURUSD looked quite stable until now (each new local highs and lows exceed the previous ones), for sale it is better to prefer the target which couldn’t break the current trend. The last local low is near 1.044, that’s why, you may place Take profit a little higher, for example at the round level of 1.05.
We may offer you the following option of trading strategy:
Sell EURUSD within a range of 1.06 - 1.063. Take profit 1 – 1.055. Take profit 2 – 1.05. Stop-loss – 1.068.
Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.
This content is for informational purposes only and is not intended to be investing advice.