Still potential for EURUSD go to 1.05

Launch Chart
Luca Santos
EURUSD
·
May 27 2024
snapshot
1
The EUR has shown recent strength, driven by a combination of better-than-expected Eurozone economic data and less dovish communication from the European Central Bank (ECB). However, this newfound strength is set to be tested by upcoming inflation and IFO data in Europe. Despite these short-term gains, the medium-term outlook for the EUR remains bearish due to a sluggish economic recovery and anticipated further rate cuts by the ECB.
  1. Eurozone Economic Data: Recent positive economic indicators have bolstered the EUR, but the sustainability of this trend is questionable given the overall weak economic recovery.
  2. ECB Policy Outlook: The ECB is likely to adopt a more accommodative stance in the future, including potential rate cuts, which will weigh on the EUR.
  3. US Economic and Political Risks: The USD might face headwinds from political and economic uncertainties in the US, but the diverging monetary policies of the ECB and the Federal Reserve (Fed) will ultimately support the USD against the EUR.

Trade Rationale:

  • Technical Analysis: The EUR/USD pair has been in an uptrend but faces significant resistance levels that could prompt a reversal.
  • Fundamental Analysis: Diverging central bank policies, with the Fed likely maintaining or raising rates and the ECB expected to cut rates, will favor the USD over the EUR in the medium term.

Trade Execution:

  • Entry Point: Short EUR/USD at current levels around 1.09.
  • Target: 1.05 over the next few months.
  • Stop Loss: 1.12 to manage risk if the EUR strengthens further beyond resistance levels.

Conclusion:

The combination of anticipated weaker Eurozone data, a dovish ECB outlook, and relative strength in the USD due to diverging monetary policies, makes a compelling case for a medium-term bearish position on the EUR/USD. Targeting a move to 1.05 reflects the expected impact of these factors.