The EURUSD currency pair continues to trade within the medium-term uptrend from the April low. The price has already recovered most of the losses of the past month, but for a full recovery it is necessary to take the last boundary at 1.086. This event may be a good reason for profit taking, but at the moment the euro still has upside potential against the dollar. It is possible that this will be realized today.
Market participants are awaiting the release of consumer price index data from the United States. Historically, high CPI values have been associated with a stronger dollar, although this pattern is not always evident. Tuesday’s manufacturing inflation figures were significantly higher than forecast, yet the US currency continued to depreciate. Based on this, traders are not anticipating a substantial growth of the dollar, which is actively used by buyers of the euro.
Bloomberg reports that the currency market is undergoing a significant reassessment of the European currency prospects. The last four weeks have seen the euro gradually strengthen against the dollar, resulting in significant losses for those betting against it. As a result, hedge funds have reduced their short positions on the single European currency by about 40%. Should the EURUSD break through the 200-day moving average, the upward dynamics will receive an additional boost.
Bloomberg analysts have linked the improvement in the outlook for the euro with the anticipation of the release of statistics on wages in the EU for the first quarter of 2024. The official data will be presented next week, but preliminary estimates already indicate an insufficient slowdown in wage growth. The figure could fall from 4.5% to 4.3%, which would not be sufficient to bring inflation back to the 2% target. This is unlikely to prevent the ECB from cutting its key rate on June 6, but it could disrupt plans for further monetary easing in Europe.
The RSI indicator on the EURUSD daily chart is approaching the overbought zone, but there is still room for short-term growth. The bulls' target is likely to be 1.086.
Consider the following trading strategy:
Buy EURUSD at the current price. Take profit – 1.086. Stop loss – 1.079.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
