In summary, the euro grapples with the formidable headwinds posed by the resurgent US dollar and the imminent release of critical economic data.
- The EUR/USD encountered a challenging trading day on Wednesday, wrestling to gain ground in the face of the resolute US dollar's dominance.
- The prevailing market sentiment hints at a prolonged downward path for the euro, with the crucial 1.06 level looming on the horizon, set to garner significant attention from both investors and traders.
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The market's focus remains firmly centered on the impending specter of inflation, with key events approaching rapidly. Scheduled for Wednesday, we have the eagerly anticipated release of the Consumer Price Index (CPI) figures, followed closely by the European Central Bank's announcement slated for Thursday. These impending announcements are poised to inject considerable volatility into the market, fostering an atmosphere of uncertainty. As a result, it is prudent for traders to prepare for turbulent price movements leading up to these pivotal events, urging many to exercise caution when contemplating significant investments in the current market climate.
Should a potential euro rally materialize, it's worth noting that the 200-day Exponential Moving Average resides at the lower boundary of a prominent channel. This EMA level carries significance due to its role in market memory and is expected to serve as a resistance point. Consequently, a measured approach would be to consider fading any rallies that may emerge. It is essential to emphasize that a substantial market upheaval is not anticipated unless an unforeseen shock disrupts the status quo. At present, the market appears to validate a downtrend, suggesting that a gradual accumulation of positions may be a more prudent strategy than hastily entering with substantial position sizes.
Looking to Fade Rallies
For a noteworthy shift in market dynamics, a breach above the 200-day EMA is a prerequisite. However, a significant transformation may only take shape when the 50-day EMA is surmounted, signaling a genuine attempt at recovery and a more pronounced shift in the market's trajectory.
In summary, the euro grapples with the formidable headwinds posed by the resurgent US dollar and the imminent release of critical economic data. As traders navigate the turbulence preceding these events, the strategy of fading rallies holds appeal. Nevertheless, exercising caution and adopting prudent risk management practices in the current climate is imperative. While interest rates remain a pivotal focus, the upward trajectory of US interest rates suggests that the US dollar will retain its allure in the foreseeable future, solidifying its position as the favored currency of choice.
Potential signal: If the EUR/USD CLOSES on Thursday below the 1.07 level, then I am selling this pair with a target of 1.0525 below, and a stop loss of 1.08 above. Keep in mind that the ECB has an interest rate decision on Thursday, hence the reason to wait for the dust to settle.