EURUSD fell after the European Central Bank (ECB) raised interest rates to record highs in an attempt to cool consumer prices. However, there was a signal that this was likely to be the last hike.
The ECB tightened deposit policy for the 10th consecutive time, increasing rates by 25 basis points to 4% on Thursday. The move came in response to a drop in official forecasts for economic growth in the eurozone.
The decision to raise rates reflects the bank's governing council's assessment of the inflation outlook, especially with the latest economic and financial data, the dynamics of core inflation and the effectiveness of monetary policy, according to the official statement. Inflation, despite some decline, is still at a high level and the ECB intends to continue efforts to reduce it, aiming to return it to the 2% level by 2025.
However, the potential of further interest rate hikes in the US is keeping investors on edge. Data released on Thursday also showed that US manufacturing prices rose at the fastest rate in over a year last month. Retail sales exceeded expectations, supported by higher gasoline prices.
These data reinforce the belief that the Federal Reserve (Fed) may raise interest rates further later this year.
According to market strategist at IG Yeap Jun Rong, the outlook for rates to be kept high for longer has been supporting the dollar. Stable economic conditions in the US call into question the need for further tightening in the near future, Rong added.
EURUSD is forming a downtrend on the H4 timeframe.
In terms of wave analysis, the price is forming the third descending wave on the H1 timeframe. The breakout of the top of the first wave at 1.0685 has already taken place. The downward movement may intensify in the near term.
The short-term outlook for EURUSD is to sell.
The target is at the level of 1.0470.
Part of the profit should be fixed near the level of 1.0570.
A Stop-loss should be placed near the level of 1.0800.
The bearish trend is of a short-term nature, so it is suggested to limit the trading volume to no more than 2% of your capital.