The EURUSD currency pair is attempting to consolidate above the key 1.1 level for the second time since the beginning of last week. The previous attempt ended with a sharp pullback in prices, and the same might happen to the current wave of growth. The euro against the dollar rate has reached the highest levels since the beginning of the year, and the number of those who want to take profits will only increase. In such conditions, there is a high probability of price correction to 1.095.
Participants of the currency market strengthened the sale of the dollar against the background of yesterday’s positive statistics on inflation in the manufacturing sector. However, analysts at Evercore ISI consider such a reaction exaggerated. In their opinion, the main attention of Fed officials has already shifted to the state of the labor market, and the data on price growth is not so important now. In this regard, small deviations of inflation figures from expectations are unlikely to affect the U.S. regulator’s policy.
The experts at Citi Research agree with this view. They are focusing on labor market and retail sales statistics, which should indicate the likelihood of the U.S. economy entering a recession. However, even in this case, Citi’s analysts believe that the dollar is a preferred investment asset, especially in light of geopolitical tensions and the upcoming presidential election. Analysts at the U.S. bank recommend selling EURUSD on any rally.
At the same time, the Reuters poll revealed that economists’ forecasts for the ECB’s future actions remained unchanged. The European regulator is expected to ease monetary policy twice more before the end of the year, in September and December. In this case, the surge in financial market volatility will not affect the ECB’s decisions. However, Fed officials are likely to maintain the same position at next week’s Jackson Hole conference. Expectations for a 0.5% rate cut in September seem overly optimistic.
The RSI indicator on the daily chart of EURUSD is approaching the overbought territory and may soon signal a reversal, especially if the U.S. CPI report fails to meet expectations. The short-term target for the bears is the 1.095 level.
Consider the following trading strategy:
Sell EURUSD at the current price. Take profit — 1.095. Stop loss — 1.105.
