EURUSD shows signs of reversal ahead of Fed and ECB meetings

25 July 2023 231
EURUSD shows signs of reversal ahead of Fed and ECB meetings

The EURUSD pair has spent the last week in a correction, pulling back from a new high since February last year at 1.1275. By the current moment, quotations have reached the range of 1.105–1.11, which acted as strong resistance in April and May. The bulls have become active at the current points, expecting a new wave of EURUSD growth after the completion of the correction. The price dynamics in the coming days will depend on the outcome of U.S. and EU central banks meetings.

The Fed will be the first to decide on the level of interest rates. Tomorrow's 0.25% rate hike is no longer in doubt. The main question is Jerome Powell's comments on the future monetary policy. The statistics of recent weeks speak in favor of a slack ongoing slowdown in the economy. Powell is unlikely to declare the end of the monetary tightening cycle, but it isn’t required now. The mention of a pause in the Fed's September meeting is enough to weaken the dollar.

The ECB will face a more difficult task on Thursday. Expectations of a 0.25% rate hike have also reached the 100% level in this case. As for the further steps of the European regulator, opinions are different. Some analysts expect the ECB to act like the Fed, i.e. they keep rates unchanged in September. Here it is worth paying attention to the difference between the state of the U.S. and EU economies.

Price growth rates in the U.S. have already slowed to 3%, while European inflation in June amounted to 5.5%. In both cases, the inflation target hasn’t yet been reached, but the Fed is now much closer to the 2% level than the ECB. Therefore, the European regulator should stay hawkish, or price growth doesn’t return to a stable level in the foreseeable future. This will ensure the strengthening of the euro against the dollar.

EURUSD upward reversal is ready to support the Stochastic indicator, one of whose lines has already reached the oversold zone. The nearest growth targets are 1.11 and 1.115.

We may offer you the following option of trading strategy: 

Buy EURUSD near 1.105. Take profit 1 — 1.11. Take profit 2 — 1.115. Stop-loss — 1.1.

This content is for informational purposes only and is not intended to be investing advice.

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