The EURUSD currency pair showed another growth momentum on Tuesday, which was rather quickly wiped out by the activity of the bears. Buying euros against the dollar above 1.06 is not popular among currency market traders. The EURUSD downtrend, which lasted from mid-July to early October, was broken. However, there was no significant recovery of the European currency during the past month. Judging by the latest news, euro buyers will have to be patient.
Yesterday the Eurostat agency published statistics on GDP for the third quarter, as well as preliminary data on inflation for October. Between July and September, the European economy contracted by 0.1% and became one step closer to recession. Analysts expect another decline in GDP at the end of the fourth quarter, but do not predict the emergence of a serious crisis. At the same time, warnings about the impact of geopolitical tensions and high interest rates significantly reduce the accuracy of such forecasts.
The progress made in the fight against inflation slightly improves the overall picture. Last month, price growth in the EU slowed from 4.3% to 2.9%, exceeding the forecast of 3.1%. Month-on-month inflation rose just 0.1%, against expectations of 0.3%. This data almost guarantees that the ECB has completed its monetary tightening cycle and is now turning to monitoring the economy and price growth before taking further steps.
At the same time, representatives of some EU countries have already started talking about the possibility of lowering interest rates. On Tuesday, Greece's central bank governor Yannis Stournaras became the first ECB policymaker to publicly announce a possible rate cut by the middle of next year assuming inflation stabilizes below 3%. This would ease pressure on the EU economy, but at the same time the euro exchange rate would lack support.
If US officials stick to their hawkish rhetoric at today's Fed meeting, EURUSD quotes could quickly return to the 1.05 level.
Consider the following trading strategy:
Sell EURUSD in the range of 1.055-1.06. Take profit - 1.05. Stop loss - 1.065.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion