Yesterday the EURUSD currency pair showed the strongest growth momentum since February. Prices easily broke through the spring highs of 1.1 and rushed to the maximums of the beginning of last year. Now there are no major resistances on the EURUSD chart up to the range of 1.12-1.125, so the upward price movement has a good chance to continue. The current news background strengthens the euro and weakens the dollar.
The U.S. currency collapse started at the moment when the inflation report for June was published. The rate of price growth slowed down more than expected: the inflation rate fell from 4% to 3% (expected 3.1%), while core inflation dropped from 5.3% to 4.8% (expected 5%). Market participants viewed these statistics as a reliable sign that the Fed's rate hike at the July 26 meeting will be the last one. Once the key rate reaches the 5.5% level, the cycle of monetary policy tightening should come to an end.
As for the upcoming fall meetings of the U.S. financial regulator, it is predicted that interest rates will remain unchanged with a probability of more than 70%. Fed representatives have time until the end of this week to try to change market expectations. Then there will be a blackout period, and until the evening of July 26, no official comments from the U.S. officials will be published.
During the Fed's blackout period, the final inflation rate data for June will be released in Europe. Preliminary data have shown a decline in the overall price growth rate from 6.1% to 5.5%. However, core inflation remains resilient. It has even risen slightly from 5.3% to 5.4% in the first month of summer. The slowdown in inflation in the EU is clearly not as strong as in the U.S., and therefore at least 2 more rate hikes are expected from the ECB. This will narrow the rate differential between the ECB and the Fed, which means an increased interest in the EUR compared to the USD.
The next upside target for EURUSD is 1.123. Technical indicators are still far from overbought condition, and from this point of view nothing prevents the prices from growing further.
Consider the following trading strategy:
Buy EURUSD in the range of 1.114-1.116. Take profit – 1,123. Stop loss – 1,109.