EURUSD tried to reverse from the monthly low set just above 1.09 at the end of last week. Friday's rebound was quite strong, but it failed to continue. Today, just like yesterday, market participants still prefer to buy the dollar and sell the euro. At this rate, EURUSD will return to the levels of 1.095 and 1.092 in the next few days.
The bulls' optimism on Friday was caused by the U.S. nonfarm payrolls data. The monthly figure turned out to be lower than expected for the second time in a row and remained below 200,000. However, the dynamics of other indicators does not allow to unambiguously state that the U.S. labor market is cooling. Thus, the unemployment rate fell from 3.6% to 3.5%, and the wage growth rate remained unchanged since June at 4.4%. This means that the Fed still has no reason to reverse the monetary cycle towards policy easing.
This is exactly the view expressed the day before by Michelle Bowman, a member of the Fed’s Federal Open Market Committee. Due to the high rates of economic growth and inflation, Bowman believes that additional tightening of monetary policy is necessary. In her opinion, the Fed has made significant progress in bringing the price growth and labor market to normal, but the goal of reducing inflation to the level of 2% is still to be achieved.
July inflation statistics, which are to be published on Thursday, may confirm or deny the validity of this position. For the first time since June last year, inflation in the U.S. may accelerate (the forecast suggests an increase from 3% to 3.3%). Given the sharp increase in oil over the past month, the price statistics will likely disappoint those analysts who expect a definitive victory over inflation. It will also be an important downside driver for EURUSD.
The nearest target for EURUSD is to return to last week's lows in the range of 1.092-1.095. In case of success, the pair may head towards the July low around 1.085.
Consider the following trading strategy:
Sell EURUSD in the range of 1.098-1.1. Take profit 1 – 1.095. Take profit 2 – 1.092. Stop loss – 1.105.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
