The EURUSD currency pair is trying to recover the positions lost after a strong decline at the end of last week. The quotes have pulled back from the level of 1.05 and now keep heading towards the 1.06 mark. Reaching it will not come as a surprise, but at the same time the potential for further growth in EURUSD looks limited. Therefore, if the level of 1.06 is exceeded, traders may open short positions in anticipation of a new downward price momentum.
Today the Eurostat agency presented the final data on the EU inflation rate for September. The figures coincided with the preliminary estimate of 4.3%. Since the beginning of the fall, inflation began to slow down more strongly than expected. A significant decline in gas prices was one of the main reasons for this phenomenon. Now the ECB key rate (4.5%) exceeds the inflation rate, and the officials of the European regulator have almost no reasons for further tightening of the monetary policy.
Meanwhile, the statistics on retail sales in the U.S. was published. In September, the indicator grew by 0.7%, significantly ahead of analysts' forecasts (0.3%). Moreover, the data for August was revised from 0.6% to 0.8%. Despite high interest rates, the U.S. population is in no hurry to reduce consumption.
Reuters estimates that excess savings accumulated during the COVID-19 pandemic remain one of the most important reasons for the growth in retail sales. According to the new forecast, the amount of savings will exceed normal levels and drive U.S. consumption until at least the end of Q1 2024. This will delay the start of the Fed's rate cut cycle, which is now unlikely to begin earlier than June or July. Consequently, the dollar exchange rate will receive support, and EURUSD is unlikely to show significant growth.
EURUSD approaching the level of 1.06 may be a good opportunity to open short positions. The 1.05 level will be the downside target. After reaching this level, the bears may aim for the 2023 lows around 1.045.
Consider the following trading strategy:
Sell EURUSD in the range of 1.058-1.06. Take profit - 1.05. Stop loss - 1.064.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion