Strategy
Sell EUR/USD at 0.9800. Stop at 1.0030 and profit target at 0.9335. Time duration is about 3-6 months
Technical View
Price remains in a downtrend channel that started in early February 2022. Even the most recent low was inside the 8-month downtrend channel. After the recent low, the corrective rally was capped by the 20EMA, keeping the downtrend intact. During the recent lows, there were no divergence warnings given by the MACD indicator. This is a hint that the current downtrend is not about to reverse as yet. We are likely to see this downtrend continues. MACD reminds in a bearish trend with both of its lines below the zero line. Stochastic is also weak. 20EMA is also bearish and hinting at a bearish price trend.
Fundamental View
The euro is likely to be weighed down by war in Ukraine. The war has led to commodity prices going up due to a shortage of supply. Ukraine is a major supplier of gains to Eurozone and the war has led to farmlands being scorched by war. Farmers have also left their farms to fight in the war. The war has also led to embargo and sanctions on Russia, whom has also reacted by cutting Europe’s supply of energy. Europe imports most of its energy needs from Russia. Soaring energy prices in Europe has led to inflation in August 2022 coming in at 9.1% for the Eurozone.
The European Central Bank raised interest rate for the first time in 11 year. While higher interest rate is good for the Euro, inflation and high interest rate have sent financial markets into recession worries. Worries over recession outweigh the benefit of a higher interest rate in Eurozone. Interest rate in the U.S. is also higher than that in Europe. The higher interest rate in the U.S. gives the US dollar an advantage over the Euro dollar.
The Federal Reserve is also likely to hike interest rate over the next 6 months. Going by the Fed own projection, interest rate is likely to be at 4.4% by the end of 2022. Interest rate is likely to be at 4.6% at the end of 2023. While the Fed said, a recession could be avoid despite the rise in interest rate, this has decreased the financial market risk sentiment, leading to an increase in demand for the safe haven U.S. dollar.