I recommend initiating a short position on EUR/USD at the price of 1.074 top of a range bound formation, with a predefined take profit level of 1.058 and a stop loss set at 1.082, ensuring that the risk does not exceed 1% of total equity. Here's the rationale behind this recommendation:

1. Eurozone Stagflation Concerns: The Eurozone's increasing vulnerability to stagflation, characterized by stagnant growth and inflationary pressures, has cast a shadow on the euro's outlook. Historical data shows that such economic conditions have historically weighed on the euro's performance.

2. USD Strength: The US dollar has been exhibiting notable strength, and there is potential for this trend to persist, especially if US economic data continues to improve.

3. Overvaluation of EUR/USD: My short-term fair value model indicates that EUR/USD is currently overvalued. Given the ongoing concerns and dynamics in the market, a correction in favor of the US dollar is plausible.

4. ECB Policy Uncertainty: The market's skepticism regarding the European Central Bank's (ECB) future policy actions, with a relatively low probability assigned to a rate hike, adds further uncertainty to the euro's prospects.

5. Risk Management: To manage risk effectively, I recommend keeping the stop loss at 1.082, ensuring that potential losses do not exceed 1% of your total equity.

EUR/USD looks vulnerable therefore short on EURUSD

Sep 07 2023

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