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Fundamentals

During Monday's (July 17th) Asian session, the EUR/USD narrowly oscillated, and it is currently trading at 1.1242. Recently, the U.S. June CPI and PPI data dropped as expected, showing that U.S. inflation is cooling sharply, reinforcing the market expectation of ending the Fed rate hikes. Currently, the market sentiment has changed, it is believed that the Fed lacks the power to keep raising interest rates and the rate hikes may be ended soon. Meanwhile, according to the CME FedWatch tool, the market still believes that the probability of the Fed raising interest rates by 25 basis points this month is 95%, but the interest rates will not be raised again for the rest of the year. This result caused the USD to fall below 100, once dropping to 99.5. In addition, the non-US currency gained mostly, while the EUR, the largest weighting of the corresponding currency, had the most serious impact on the USDX. It was also one of the currencies with the most significant appreciations, growing from 1.0640 to 1.1240. From the current market situation, the European region's inflationary pressures are significantly stronger than the United States, that is, the ECB's interest rate hike power is also stronger, which will put pressure on the USDX in the future. Nonetheless, after plunging for 6 days continuously, the USDX stopped at 99. Due to a large decline in the early stage, there may be a rebound demand in the short term for USDX. Besides, the short-term data is not enough to change the Fed's hawkish stance, and the downward space of the USDX is limited. Thus, there could be a retracement for EUR/USD.

Key data to watch today: Since there is no essential data during the Europe/U.S. session, the focus should be on the G20 finance ministers and central bankers meeting, and the speeches from ECB President Lagarde.

Technical Analysis

Regarding the daily chart, EUR/USD has appreciated for 8 consecutive days with the SMAs lining together. Moreover, the MACD forms a golden cross and expands, while EUR/USD stands on the 5-day, 10-day, and 20-day SMAs, suggesting a clear bullish trend. However, MACD has entered the overbought zone, and the current price is near the resistance area where 61.8% Fibonacci retracement (1.1250) for the descending in 2021-2022 locates. Moreover, there was a Doji star at the tops on the last trading day, indicating a retracement consolidation demand soon. Thus, the focus will be the support at 1.1100 (the high of March 2022) and the resistance at 1.1250.

Today's trading plan: Aggressive traders can go short with small positions at 1.1250 and set the stop-loss at 1.1300. Besides, the initial target could be 1.1100, where investors can take profits partially, and move the stop loss to breakeven. The second target should be 1.0850.

Trading Recommendations

Trading direction: Short

Entry price: 1.1250

Target price: 1.1100

Stop loss: 1.1300

Support: 1.1100/1.0850

Resistance: 1.130011.1500