The EURUSD currency pair, after finding resistance at 1.11, moved to a corrective decline. The last week the quotes were gradually sliding down, and this morning the price already crossed the level of 1.092. On the hourly chart, a local downtrend was formed, in which EURUSD continues to roll back from the annual highs. However, even in this situation it is possible to catch the upward price impulse.
Yesterday the bulls tried to attack the descending trend line amid the release of data on a slight decline in U.S. inflation in April. However, the quite modest scale of the price slowdown allowed the trend to resist, and today there are active actions of the bears, which have brought the EURUSD quotes down to the lows of the last 3 weeks.
In Europe, the trend towards a slowdown in inflation is also observed, but due to the high dependence on imported raw materials, especially energy, the rate of price growth there is still ahead of the U.S. indicators. The latest ECB survey showed an increase in inflation expectations for the next year from 4.6% to 5%. The forecast values rose for the first time since October, just as inflation is expected to rise for the next 3 years (from 2.4% to 2.9%).
For the ECB, which at its last meeting slowed the pace of interest rate increases to a minimum step of 0.25%, such statistics are highly undesirable. High inflation expectations cause preventive price increases in long-term contracts, i.e., the forecast becomes largely selffulfilling. To prevent this process, the ECB will have to continue tightening monetary policy, which is a factor in favor of strengthening the euro against the dollar.
On the hour chart of EURUSD the Stochastic indicator has entered into oversold area, but a complete reversal has not yet been formed. To reduce the risk, it is possible to wait for the formation of a clear signal to buy. As long as the quotes did not go below 1.091, the chances of a bounce to the trend line, just above the 1.097-1.098 range, prevail.
The following trading strategy option can be suggested:
Buy EURUSD in the range of 1.092-1.093. Take profit 1 – 1.097. Take profit 2 – 1.098. Stop loss – 1.091.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.
This content is for informational purposes only and is not intended to be investing advice.
