FX Trading Idea – EUR/USD


Sell EUR/USD at 1.0955. Stop at 1.1105 and profit target at 1.0615. Time duration is about 2-3 months

Technical View

Price in the previous week tested the upper edge of the cloud. Price managed to move above the cloud but closed the week inside the cloud. The previous week candlestick was in the form of a Spinning Top candlestick, which is a hint of a price reversal. The Fibonacci 50% correction point is also acting as a price resistance, enhancing the possibility of a possible price high. Price is likely to find difficulty in passing through these resistances.

Stochastic is also hinting at a possible price high and a likely bearish price trend ahead. However the Base line and the MACD are both hinting at a bullish price trend. We think the rally off the low in early October 2022 may have ended and a corrective decline back to the Base line support at 1.0615 is likely in the next 10-12 weeks.

Fundamental View

Non-farm payroll in the previous week had hinted at a strong labour market. With inflation still running above the Federal Reserve targeted rate of 2%, the U.S. central bank is likely and has room to hike interest rates. The strong labour market is likely to enable the U.S. central bank to keep interest rate higher for a longer period of time to tame inflation. A higher US interest rate is likely to aid the US dollar against the Euro.

While the Euro is also on a hiking path, European Central Bank chief has hinted the hike path may be near to its end. This is likely to keep the difference in interest rate in the US dollar favour, keeping the US dollar strong. The ECB may have limited scope to hike interest rate. The Eurozone economy is at risk of a recession due to high fuel prices. The risk of a Eurozone recession is also likely to weigh on the Euro dollar.

Yields on the US bonds are currently higher than that of the Euro bond. This is likely to attract investors into buy US Treasury and bond instead of Eurozone bonds. This is also likely to keep the US dollar strong on demand for bond purchase payment.

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