EURUSD may show a rebound upwards

The EURUSD currency pair lost more than a quarter of the cumulative growth of March and April during the last two trading sessions. The quotes reached the 38.2% Fibonacci retracement level (1.087) and are consolidating around it today. There is still a potential for a continuation of the descent to 1.08, but in that case the technical indicators will enter oversold condition for the first time since the end of February. Most likely, a bounce up will occur a little bit earlier.

Now the dollar attracts investors primarily as a safe haven asset, as the prospects for further increases in U.S. currency yields have become very uncertain. Despite quite aggressive comments from Fed representatives, there is almost no real opportunity to raise the level of interest rates any higher. Banking system problems and worsening consumer sentiment support keeping monetary policy unchanged at the June 14 meeting.

ECB officials, unlike their U.S. counterparts, are not thinking about a pause and intend to raise rates in June and July. And after that, the ECB will keep interest rates at peak levels until at least the second quarter of 2024. Earlier forecasts indicated a softening of policy in the first quarter of the next year.

This change in expectations was due to a steady indicator of core inflation. It excludes volatile components in its calculation and is the main indicator of price changes for the central bank. Core inflation will remain above the 2% target until at least the fourth quarter of the next year. Some ECB representatives believe that a 0.25% rate increase in June and July may still not be enough to finally defeat rising prices.

The area around 1.0845 looks interesting to buy EURUSD with the expectation of a further rebound. The Fibonacci level of 23.6% (1.096) will be the target for the corrective growth. A deeper fall is possible at a breakdown of the 1.0805 level.

The following trading strategy option can be suggested:

Buy EURUSD in the range of 1.084-1.085. Take profit – 1.096. Stop loss – 1.0805.

Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.