Support for a rate hike by the ECB council member Ewald Nowotny and the victory of pro-EU candidate Mark Rutte in the Dutch election propelled the Euro against the Greenback, last week. The failure of Trump to repeal Obamacare also assisted the EURUSD to rally to a four-month high of 1.0905. Having expected such a rally, on March 20th, we had suggested going long in the EURUSD pair near 1.0700. To binary traders, a call option was recommended. Both recommendations have ended in profit. Now, considering the details below, we foresee a short-term correction in the EURUSD pair.
The course of the EURUSD would be decided by two major economic events this week. Firstly, it is the headline inflation data. According to analysts at TD Securities, after a strong 2.2% y-o-y increase, the inflation is expected to cool off a bit this month. The argument is based on a decline in oil prices and the timing of Easter. The Euro is expected to decline if the inflation rate eases a bit.
Secondly, Robin Winkler, an analyst at Deutsche Bank, believes that the end of SNB’s (Swiss National Bank) intervention in the Forex market is on the horizon. The expectation is based on the high costs of operation and change in inputs to valuation models, which indicate that the Franc is not as overvalued as thought previously. The expectation would further increase the flow of investments into the Swiss Franc and away from the Euro dollar, which has appreciated considerably in the past few weeks.
Despite weakness in the Greenback, the economy continues to perform well. The new home sales increased 6.1% to 592,000 in February and the current account deficit has narrowed to 112 billion in the fourth quarter of 2016. Thus, fundamentally, the EURUSD pair is expected to begin a downtrend.
The EURUSD pair is facing resistance at 1.0850, as shown in the chart. The RSI indicator is currently in the bearish zone. The currency pair is also moving along the descending trend line. Thus, a decline until the next support level of 1.0730 can be anticipated.
A Forex trader can use the opportunity to go short in the EURUSD pair at 1.0840, with a stop-loss order above 1.0910. An exit from the short position can be made near the major support level of 1.0730.
Investing in a put option would be the best decision in the current scenario. The investment should be made when the currency pair trades near 1.0840. Additionally, a date around April 7th should be chosen as the expiry date for the recommended contract.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
