EURUSD rebound has already exhausted most of its potential

The EURUSD currency pair over the last week showed a good rebound from the five-month low set on April 16 just above the level of 1.06. The too high rate of strengthening of the dollar against the euro brought the technical indicators into the oversold zone, and now the situation is gradually normalizing. Nevertheless, the current recovery of quotations is unlikely to develop into a sustainable trend, the upward correction could end in the coming days.

While a Fed blackout period ahead of the May 1 meeting has already started, Reuters conducted a survey among leading economists. Experts' expectations regarding the speed of monetary policy easing in the U.S. were again revised downward. Most analysts now predict only 2 Fed rate cuts before the end of the year. Moreover, there is a growing number of pessimists who forecast the key rate to remain unchanged until 2025.

The main reasons for keeping tight monetary policy are a new surge in inflation and strong GDP data. Q1 GDP estimates will be released tomorrow, and updated figures for the PCE price index will be released on Friday. Fed Vice Chairman Philip Jefferson said that the inflation rate for this indicator increased from 2.5% to 2.7% in March. If the actual data doesn’t meet expectations, the dollar will begin to strengthen rapidly.

In such a situation, UBS analysts lowered their forecast on the ratio of the euro to the dollar. Earlier the specialists of the Swiss bank considered 1.05 a strong support level, below which EURUSD will not fall. However, now the American currency has a more significant strengthening potential, and approaching of quotations to 1.05 is not an unambiguous signal to open long positions.

The decline in euro purchases was already noticeable at yesterday's trading session, when EURUSD unsuccessfully tried to consolidate above the level of 1.07. This could put the initiative back in the hands of the bears, and the price will decline to 1.065.

The following trading strategy can be suggested:

Sell EURUSD around the level of 1.07. Take profit — 1.065. Stop loss — 1.073.

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