The currency market has been quite volatile lately. How can we benefit from the upcoming movements on the most traded currency pair out there?

The Dow Experts are more into picking stocks and ETFs rather than concentrating on currency pairs. Yet, we sometimes look for alternative investing and trading opportunities as well in order to diversify our portfolio better and seek to boost our followers’ profitability on the market.


For one of our bonus reports for June we have decided to look at the recent performance of the EUR/USD, which is the world’s most traded currency pair out there and it reflects on all the major news and economic reports coming out on a daily, weekly and monthly basis.

The EUR/USD forex ticker tells traders how many US dollars are needed to buy a Euro. The Euro-Dollar pair is very popular among traders because its constituents represent the two largest and most influential economies in the world.

There is probably almost no experienced currency trader or investor out there that doesn’t analyze the performance of the EUR/USD.

The most recent economic reports that influenced the EUR/USD pair were the Nonfarm payrolls (NFP) report and the Unemployment rate that came out on the 4th of June. In fact, the two reports come out every first Friday of the month. The NFP shows the number of new jobs that the US economy has created in the previous month outside the farm sector, which is of course related to the unemployment rate and both reports usually have a solid impact on the EUR/USD pair.

As a matter of fact, the NFP came out a bit worse than expected, reporting 559,000 new job creations in the US, while the expectations were for 650,000. Yet, the good news was that the Unemployment rate dropped from just above 6% to 5.8% which was quite a positive factor, showing the situation in the economy is slowly going back to normal levels after the slowdown during the pandemic. In other words, we saw a mixed report with a bit of a miss on NFP expectations but better than expected Unemployment rate figure.

Overall, the interest rates in both Europe and the United States have remained at 0% and are expected to stay there most likely at least by the end of the year. The Federal Reserve (FED) has mentioned a potential interest rate hike if inflation stays at around their target of 2% for a longer time, meaning they are not expected to raise rates before the end of the year.

Our traders should know that understanding monetary policy and overall fundamentals is essential for their success in trading and investing.
In fact, when interest rates go up in a country, in most cases this is seen as positive for the currency. So, if the FED raises rates in the end of the year or next year, the USD is expected to strengthen further. Moreover, our followers should know that the market is driven by expectations. Thus, if the FED mentions they would raise rates soon that is expected to have an immediate bullish effect on the dollar right after their statement and before they actually raise rates.

Technical analysis

The daily chart shows that the EUR/USD had been in a massive uptrend since the COVID-19 pandemic started last year. In other words, the EUR/USD was trading at the $1.07 lows in March 2020 to reach the $1.2350 highs in January this year. In other words, the EUR had been quite stronger than the dollar during that period of time.

Since then though, the USD has gained some strength and we have seen lots of selling pressure on the EUR/USD pair that led to the price following a strong downtrend, dropping to the $1.17 lows in the first week of April, followed by another strong uptrend in the past 2 months, leading to a price appreciation towards the $1.2260 highs. Yet, the price faced lots of selling pressure at that key resistance at $1.2260 where the horizontal resistance matched with the diagonal resistance at that level and the upper Bollinger band stands right at that point, while the Stochastics and RSI indicators started giving lots of overbought signals, indicating for a very likely downside movement afterwards. That’s exactly what happened and the price failed to break that resistance to the upside, falling to the current levels at $1.2160.
By taking into account the economic situation in the US and the fact that the economy is slowly getting better over there, we believe the dollar would keep strengthening in the short to middle term and the price is still extremely overbought compared to last year’s $1.07.

Thus, since the price is close to testing the resistance at $1.2260, we believe that is giving us a great entry level for our short positions, which would give us a chance to boost our profitability to the upside. Should the price break that resistance to the upside it would be expected to test the next resistance at $1.2330 that was created in early January this year and the price failed to break it on the way up. Thus, we would be expecting a lot more selling pressure again should the price reach that level. Overall, we believe the short-term picture on the EUR/USD looks bearish and we would be looking to open our sell positions and maximize our profitability to the downside.




Chart: EUR/USD



Conclusion

By looking at the overall fundamental situation and the facts we mentioned above, together with the technical picture on the leading currency pair, we believe the short to middle term picture on the EUR/USD shows that the price could easily fall further from the resistance levels at $1.2260 or the next one at $1.2330. The Federal Reserve’s comments about potentially raising interest rates later in the year once inflation stands longer at their target at around 2% would be expected to further boost the value of the dollar.
Thus, we have decided to wait for a little bullish movement in the short-term that could send the price close towards the $1.2260 and we would be looking to open our first sell positions right below that resistance at around $1.2230. Should the price break the resistance to the upside, we would be looking to sell more at around $1.2300 – $2.2310 that would give us a chance to get a better average price and further maximize our profitability to the downside.

Our initial profit-taking target is set at $1.2080, followed by the next target at $1.1940 where we would be looking to take all profits and wait for another short-term bounce on the price that would give us a chance to sell the EUR/USD again at a strong resistance level.




Sincerely,

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