EURUSD reverses downward after two weeks of gains

The EURUSD currency pair is completing the wave of growth, which raised the quotes from 1.07 to 1.085 over the last 2 weeks. The increasing bearish resistance was noticeable as early as Tuesday's trading session, and today the bears have already taken the initiative in their own hands. A quick return to the February lows is unlikely, but a corrective pullback to the 1.076-1.079 range may well be seen in the next few days.

The euro strengthening against the dollar was accompanied by the release of new data on major investors' positioning on the currency market. As Bloomberg reports, the net long position on the European currency fell to the minimum since November 2022. Moreover, fund managers have been selling the euro against all major currencies except the franc and the yen for 5 weeks in a row.

Worsening of forecasts on the euro rate is caused by overestimation of expectations regarding further actions of the ECB. According to the currency market participants, the ECB will begin to reduce its key rate earlier than the Fed because of a faster decline in inflation in Europe. In this case, by the end of 2024, the European regulator may reduce the borrowing costs by 1%, while the Fed is expected to soften monetary policy by only 0.75%.

Released statistics on the EU economy further pushes the ECB to reduce interest rates soon. In January 2024, European banks increased corporate lending by only 0.2%. Loans to households rose 0.3% last month. This marked their slowest increase rate since 2015. Loan book growth has virtually stopped since the fall. In such conditions, the European economy will continue to stagnate, strengthening the arguments in favor of easing monetary policy.

On the daily chart of EURUSD the RSI indicator made a reversal and now points to a high probability of the quotes' shift to the downward movement. Short-term targets for sellers of the European currency will be the levels of 1.079 and 1.076.

Consider the following trading strategy:

Sell EURUSD at the current price. Take profit 1 - 1.079. Take profit 2 - 1.076. Stop loss - 1.085.

Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion