USD Strengthening, Will EUR/USD Fall?
IFC Markets | Jun 19, 2017 08:14AM ET
In the current and next years, the Fed is going to raise rates 4 more times
At the previous meeting on June 15, 2017, the US Federal Reserve raised the base interest rate by 25 basis points to 1-1.25%. This contributed to the strengthening of the US dollar. Will the EUR/USD fall?
The Fed confirmed its intention to raise the rate one more time this year and three times in 2018. In addition, the American regulator announced plans to reduce the portfolio of government bonds on its balance sheet in the amount of $4.5 trillion. It involves reducing by $6 billion monthly the reinvestment of maturing Treasury bonds, and by $4 billion- mortgage securities.
These amounts will rise each quarter until they reach $30 billion and $20 billion per month, respectively. Market participants very positively assessed such reduction in the Fed's balance sheet. Note that the ECB, on the contrary, is not going to tighten its monetary policy, refuse to issue euro and raise the rate.
On the daily timeframe, EUR/USD: D1 left the rising trend. A downward correction is possible in case of the worsening of economic indicators in the Eurozone and improvement of economic indicators in the USA.
- The Parabolic indicator gives a bearish signal.
- The Bollinger bands have narrowed, which indicates low volatility.
- The RSI indicator is below 50. It has formed double negative divergence.
- The MACD indicator gives a bearish signal.
The bearish momentum may develop in case EUR/USD falls below the last fractal low at 1.11. This level may serve as an entry point. The initial stop-loss may be placed above the last fractal high, the 7-month maximum and the Parabolic signal at 1.13. After placing the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point.
More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop level 1.13 without reaching the order at 1.11, we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position - Sell
Sell stop - Below 1,11
Stop loss - Above 1,13
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