As anticipated in the previous forecast, the EURUSD currency pair spent the first half of July in a correction. The price retreated from the 1.183 level to 1.16, where the bears attempted to break the six-month uptrend. However, this week, buyers of the euro against the dollar have regained control, and EURUSD has climbed back above the trendline. The rapid recovery of most of the decline may precede an equally swift rise toward the recent high.
According to a Bloomberg survey, forex market participants are once again inclined to sell the dollar. Traders used the local strengthening of the US currency to increase short positions rather than to sharply revise their trading strategies. Their expectations center on a more dovish stance from the Fed at the July 30 meeting and concerns over failing to reach trade agreements with multiple countries before the August 1 deadline.
George Saravelos of Deutsche Bank points out that, ultimately, Donald Trump’s import tariffs will be paid not by foreign companies but by American consumers. Based on his estimates, this process will exert additional pressure on the dollar, which is already weakened by the administration’s attacks on the Fed chair and the growing budget deficit. Given this, the EURUSD trend reversal still lacks sufficiently strong fundamental catalysts.
One such catalyst could be further monetary policy easing by the ECB, but Bank of America analysts do not see this as an outright negative for the euro. In their view, the European regulator will cut interest rates at its September and December meetings, after which borrowing costs will stabilize at 1.5%. At the same time, the Fed has far greater potential for policy easing, especially if Jerome Powell is replaced by one of Trump’s supporters.
Technical indicators also point to a new upward wave for EURUSD. The nearest target for buyers will be a return to the 1.183 level.
Consider the following trading strategy:
Buy EURUSD at the current price. Take profit — 1.183. Stop loss — 1.16.
This content is for informational purposes only and is not intended to be investing advice.
