Technical View
Price made a low of 1.1105 on the 23rd of May 2019 and a month before this date had made a low of 1.1110. Just 3 days ago, price broke above the neckline of this small Double Bottom reversal chart pattern. The target for this Double Bottom chart pattern is at 1.1420. 3 days ago, price also broke above a down sloping trend line. There is a double confirmation that the downtrend have ended at 1.1105 and a reversal of trend could bring price higher to 1.1420. MACD has turned bullish and is trending higher. Stochastic has reached the overbought extreme but has not shown as signs of a reversal as yet. The trend is likely to continue higher towards 1.1420 and eventually to 1.1660 which is the Fibonacci 38% correction point of the decline from 1.2555 to the low of 1.1105.
Fundamental View
ECB has stated in its latest meeting on 6 June that it is their intention to maintain interest rate at current rate until the middle of 2020. With interest rate at zero percent, there is not much room for ECB to move. On the other hand, the Federal Reserve’s Chairman Powell has hinted that rate could be reduced if necessary to sustain the US economy. A cut by the Federal Reserve is expected as early as July 2019. A cut in US interest rate would effectively reduce the interest rate differential between the 2 currencies and help the Euro.
In the US futures market, participants are actually pricing more than just 1 cut by the Federal Reserve. Market is pricing 2 interest rate cuts by the Federal Reserve by the end of the year and this could benefit the Euro dollar. However, this is the market perception but it may not be the Federal Reserve’s opinion and market could be pricing in too much.
Strategy
With a reduction in interest rate differential, Euro is likely to gain against the US$. However the differential is still in the US$ favour and this is likely to limit gains for the Euro. Should the Federal Reserve cuts interest rate more, EUR/USD is likely to go higher.
We would recommend buying EUR/USD at 1.1280 for 1.1660 with a stop below 1.1100