The EURUSD currency pair was subjected to strong sell-offs yesterday. Tuesday's trading session ended below the level of 1.09, which has not happened for almost a month. Today there is some stabilization of the situation, but attempts of the bulls to organize a rebound are out of the question. Thus, a breakdown of the medium-term uptrend, which had been lasting since the beginning of October, may be recorded. This may lead to the continuation of EURUSD downward movement towards the level of 1.083.
A sharp weakening of the euro against the dollar was accompanied by a whole complex of factors. Christopher Waller, the Fed governor, who spoke yesterday, provided the main support to the US currency. Waller, as well as most of his colleagues, urged not to hurry with the beginning of a cycle of interest rate cuts. Instead, it is worth waiting for more economic data to be released before making important decisions. As a result, market participants' hopes for a March easing of monetary policy have slightly faded.
The rhetoric of ECB officials generally matches the statements of Fed members, but in this case, hawkish comments did not have a significant impact on traders. The main reason lies in the noticeably weaker state of the EU economy compared to the US. ECB Governing Council member Francois Villeroy de Galhau said about the high probability of rate cuts this year. It is quite expected that he did not name a specific date, but market expectations continue to point to April.
Imminent easing of monetary policy in Europe is facilitated by falling inflation expectations of the population. A new ECB survey showed a decrease in the estimate of price growth for the year ahead from 4% to 3.2%, and for 3 years from 2.5% to 2.2%. In the opinion of EU residents, a surge in inflation in December was an isolated case, and already in spring the rate of price growth will approach the target level of 2%.
If today there is no return of EURUSD above the rising trend line, it will be an important sign of a change in the medium-term picture on the currency market. In this case, reaching the level of 1.083 will not take long.
The following trading strategy may be offered:
Sell EURUSD at the current price. Take profit – 1.083. Stop-loss – 1.092.
Also, traders can use a Trailing Stop instead of a fixed Stop-loss at their discretion.