EURUSD heading for downward correction

The EURUSD currency pair rate pulled back from the one and a half month high of 1.0964 set during yesterday's trading session. Such correction emerged after the release of the minutes of the U.S. Federal Reserve (Fed) last meeting, which requires evaluation among financial market participants. 

The published data did little to sway the opinion that the Fed has reached its terminal rate. This opinion was expressed by Matt Simpson, senior market analyst at City Index.

According to the expert, all Fed officials found it expedient to keep the current level of rates. They would only raise interest rates if progress in controlling inflation faltered.

Markets are all but certain that the Fed will hold rates at their December meeting, while pricing in about a 30% chance of a rate cut as early as March, according to CME's FedWatch Tool.

Nevertheless, at the moment there are signs that the dollar bearish move is running out of steam. Given the upcoming four-day weekend in the U.S., there may be a temporary rebound in the American currency, according to Simpson. 

According to European Central Bank (ECB) President Christine Lagarde, the regulator has time now to assess how inflation unfolds after a record string of rate hikes. As Lagarde says, now it is better to remain focused on bringing inflation back to the target level, and not rush to premature conclusions.

Markets now expect the ECB's next move to be a rate cut in April. According to Reuters’ analysts, the regulator will cut rates by more than 90 basis points before the end of 2024.

The ECB will keep monitoring the situation in the labor market and assessing the long-term prospects for inflation.

EURUSD quotes went beyond the uptrend on the H1 timeframe.

Wave analysis indicates the beginning of the fourth downward wave formation, caused by the lack of strong macroeconomic data and the upcoming long weekend in the United States. The Relative Strength Index (RSI) indicator (standard values) portends a change in the direction of the rate movement and the transition to a fourth downward wave, which is reflected in the divergence.

Signal:

Short-term prospects for EURUSD suggest selling. 

The target is at the level of 1.0825.

Part of the profit should be taken near the level of 1.0880.

A stop-loss could be placed at the level of 1.0975.

The bearish trend is short-term, so trade volume should not exceed 2% of your balance.