Strategy
Sell 1.2020 for 1.1600 with a stop above 1.2280. Time duration could be about 6-9 months.
Technical View
Price reached a high of 1.2032 in late May 2021, which was lower than the previous high at 1.2349 back in early March 2021. Price may have formed a potential Double Tops chart pattern. This could be a sign that price had reached a high and a correction could be unfolding with a target of 1.1600 at the Fibonacci 127% of the decline from 1.2349 to 1.1703. This is also near to the Fibonacci 50% correction point of the rally from 1.0637 to 1.2349.
Stochastic has a bearish crossover near to the overbought zone, which is a hint of a potential declining price trend. MACD also has a bearish crossover near to the zero line, which could be a hint of a potential downtrend as well. 20EMA has turned bearish and is hinting of a bearish price trend. These 3 indicators are all hinting of a potential downtrend ahead.
Fundamental View
The U.S. is likely to reap the growth rewards that it sowed with its massive fiscal stimulus policy. This is likely to see GDP growth rate out-performs its peers other than China. The US GDP is projected to grow 2.9%, higher than the Eurozone growth rate of 2.8% with data from Factset. This is likely to result in the US dollar being stronger than the Euro currency.
With the US economy growing, inflation has also crept higher, resulting in US bond yield generating a higher return than the Eurozone bond yields. Euro zone inflation projection has fallen below the European central bank projection as well. In the latest ECB press conference, it said that inflation target has been below target for the forecasted period. This is likely to support the US dollar against the Euro currency.
With US bond yields returning a higher return than its European counterpart, it is likely that European investors will turn to US bonds, creating a buy US dollar demand by selling the Euro currency to purchase US bonds. This is also likely to lead to a strong US dollar against the Euro currency.