Strategy
Buy 1.0590 for 1.1080 with a stop below 1.0300. Time duration is about 3 months.
Technical View
Price reached a peak in December 2020 and has been on a decline. The decline has brought price lower to a low of $1.0350 just two week ago. We think price might have reached a low. Stochastic has a bullish crossover in the oversold zone and is hinting at a price rally. Although MACD remains in the bearish zone and is hinting at a bearish price, a bullish crossover may happen as both lines are close by. A MACD crossover would reinforce the bullish price trend.
If there is a price rally, we are expecting price to travel to the Fibonacci 38% price correction of the decline currently at 1.1080. There is also previous price high around this region. This is likely to be the first resistance as well as the first target.
Fundamental View
European Central Bank President Christine Lagarde indicated negative interest rates, a euro zone feature for eight years, will most likely be gone by the end of September 2022. Lagarde’s hint to hike interest rate as early as July 2022 is likely to mean that the interest rate differential between the euro and the US dollar has probably peaked in May 2022. While the Federal Reserve is likely to hike interest rate, the interest rate gap between the 2 countries will not widen. The euro had declined since the middle of January 2022 from 1.1490 on expectations of a hike in US monetary policy while the ECB kept its interest rate in the negative zone.
Market has been betting on an aggressive interest rate hike by the Federal Reserve for the past 5 months. The Federal Reserve has also played its part. The Fed had already indicated an aggressive path by hiking interest rate by 50 basis points in the last FOMC meeting and is likely to hike interest rate by the same amount in the next FOMC meeting. But this aggressive hike path has also been priced into the euro decline.
Besides interest rate differential, war in Ukraine is also keeping the safe haven US dollar strong while weakening the euro. However, war in Ukraine has been raging for the past 3 months and by now, war has probably been factored into the euro decline for the past 5 months. Unless the war situation in Ukraine deteriorates, the US dollar is not going to gain from its status as a safe haven.