The EURUSD currency pair continues to build on the rebound from the 1.117 level started on Monday. Buyers of the euro against the dollar have already liquidated most of the May losses and can now target the April tops. The next important boundary on their way will be 1.142, which is the last obstacle before the 3-year high of 1.157. Judging by the price gains in recent days, reaching these levels could take place before the end of spring.
The decision of Moody’s to downgrade US credit rating has become the trigger for a new wave of weakening of the US currency. Bloomberg reports the most “bearish” positioning of traders in the options market against the dollar since 2011. The net short position in US currency reached $16.5 billion, a level not seen since last September. Market participants consider the 90-day postponement of import tariffs between the US and China as only a temporary respite before a new outbreak of tension.
Some Fed’s officials share the same point of view. In yesterday's speech, the President of the Federal Reserve Bank of St. Louis, Alberto Musalem, spoke about the negative effect of the imposed duties for the US economy in general and for the labor market in particular. They may cause a simultaneous jump in inflation and unemployment, and then the regulator will have to choose a priority direction of work. Supporting employment can only accelerate price growth, while curbing inflation risks significantly weakening the labor market.
While the Fed has ample room to ease monetary policy, the ECB is getting closer to the limit line. According to Madis Muller, a member of the regulator's Governing Council, interest rates are already low enough not to hinder the region's economic recovery. Additional cuts at the June 5 meeting are possible, but inflation risks should be kept in mind. The need for such steps is obscure now, which plays in favor of a stronger euro.
The RSI and Stochastic indicators on the daily chart of EURUSD are moving upwards without signs of overheating. This raises the probability of the quotes to rise to 1.142 soon.
Consider the following trading strategy:
Buy EURUSD at the current price. Take profit – 1.142. Stop loss – 1.117.
This content is for informational purposes only and is not intended to be investing advice.
