The EURUSD currency pair is declining despite a tough stance of the European Central Bank (ECB).
On Monday, some representatives of the bank's board argued in favor of further rate hikes, as the inflation rate might be higher than expected.
The regulator raised rates by 0.25% to a 22-year high last week.
According to Bloomberg, the ECB recently announced to banks that passed the first round of stress tests this year that the final results will no longer be so optimistic.
Those banks that benefit from rate hikes, should now start preparing for corrections in order to get more realistic results. However, many credit institutions show their disagreement. They believe that the ECB is seeking worse results to put pressure on the entire banking industry.
The stress test score is highly important for banks, showing their readiness for the sector’s shocks and presenting capital requirements.
If credit institutions collectively share negative results of the stress test, it might raise concerns about the financial stability of the banking system. This scenario might partially reduce the value of the European currency.
Market participants are cautious ahead of Federal Reserve (Fed) Chairman Jerome Powell's speech in Congress on Wednesday and Thursday. Investors will be closely watching for signals on the regulator's further monetary policy.
The EURUSD currency pair continues to form an uptrend on the H1 timeframe. The Relative Strength Index (standard values) confirms the current downward price convergence. The price pulled back from local trend resistance, signaling the pair's movement to upside support.
In terms of wave analysis, the currency pair is in the formation of the fourth downward wave on the H4 timeframe. The structure of this wave has a corrective character. The price departure to the downtrend is necessary for the creation of the fifth ascending wave.
Signal:
The short-term outlook for the EURUSD currency pair suggests selling.
The target is at the level of 1.0875.
Part of the profit should be taken near 1.0905.
The Stop-loss is set at 1.0980.
Bearish trend has a short-term character, so the trade volume should not be more than 2% of your balance.
This content is for informational purposes only and is not intended to be investing advice.
