The EURUSD currency pair continues a corrective movement within the local downtrend. Yesterday the level of 1.0805 was passed, but there is still one more target to reach at the Fibonacci level of 61.8% (1.0735). The technical indicators are already close to oversold condition, but the reversal signals have not been formed yet. Consequently, the bounce of EURUSD quotes upward is likely to happen after the level of 1.0735 is reached.
Yesterday optimism among dollar buyers was supported by positive U.S. macroeconomic statistics. The number of initial jobless claims for the last week unexpectedly fell to 242 thousand, which was better than the predicted level of 254 thousand. The Philadelphia Fed's manufacturing activity indicator was also encouraging. Although it has not yet been possible to move out of the negative zone, the renewal of the maximum since January is a good sign for industrial enterprises.
The positive dynamics of the U.S. economy indicators immediately caused an increase in the rhetoric of Fed officials about the continuation of the interest rate hike cycle. The day before, James Bullard, the head of the St. Louis Fed, and Laurie Logan, the president of the Dallas Fed, confirmed their hawkish position. As a result, the probability of an additional tightening of monetary policy on June 14 has already exceeded 35%, which provides significant support for the dollar.
Today, Chairman Jerome Powell will personally conclude a week full of speeches by Fed officials. Market participants expect Powell to give signs of a pause on policy tightening as inflation gradually slows and labor market conditions ease. At the same time, according to a Reuters survey, the level of interest rates in the U.S. will not decrease until the end of this year, supporting the attractiveness of dollar bonds.
As long as the EURUSD quotes remain below 1.0805, the main scenario is the continuation of the decrease to the level of 1.0735. Also the downtrend line, which extends from the highs of the beginning of May, is pressuring the price.
The following trading strategy option can be suggested:
Sell EURUSD below the level of 1.0805. Take profit – 1.0735. Stop loss – 1.084.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.