The surprisingly hawkish stance of the New York Federal Reserve President William Dudley and San Francisco Fed President John Williams pushed the US dollar into a higher orbit against its arch-rival – the Euro – on Wednesday last week. The Euro, which is under pressure due to the rise of anti-EU and nationalist parties in France, the Netherlands, and Italy, fell to a low of 1.0510 against the US dollar. However, we anticipate the EURUSD pair to consolidate and exhibit a short-term bullish trend reversal due to the reasons mentioned below.
On Wednesday last week, the US Institute for Supply Management reported an increase in the Purchasing Managers Index (PMI) reading to 57.7 in February, up from 56 in the previous month and above the market’s expectation of 56.2. The figures indicate that the US economy is in strong health. However, the Greenback hardly moved. The reason is that the market is now looking for details on infrastructure spending and tax reforms.
The US dollar will be able to rally only after Trump unveils his tax reform plan. Furthermore, the plan should convince the market that it would stimulate US economic growth. Legendary investor Warren Buffett stated that the tax reform would be only revenue-neutral to the US companies.
In Europe, the Destatis reported a 0.9% m-o-m increase in the import prices in January. Analysts had expected only a 0.5% increase in the import prices, considering the 1.9% rise recorded in the prior month. Since the increase in costs is mostly passed on to the customers, the figures reflect a rising inflation scenario in the EU.
Similarly, the Eurostat reported a 0.7% m-o-m increase in the Producer Price Index (PPI) reading in January, versus a 0.8% gain in the previous month, but higher than analysts’ estimates of a 0.5% increase.
As far as the French election is concerned, the latest survey indicates that Emmanuel Macron, the former economy minister, would win the French election by beating Marine Le Pen in the second round. Thus, economic data and political developments support a short-term rally in the EURUSD pair.
The price chart indicates the existence of firm support for the EURUSD pair at 1.0520. The rising on balance volume and stochastic oscillator indicate the possibility of a reversal. So, we can expect the Euro to gain ground against the Greenback soon.
The EURUSD pair can be traded by opening a long position near 1.0580. A stop-loss order below 1.0500 would save the trader from incurring large losses in case of an unexpected trend change. The long position can be sold near 1.0720.
Similarly, a high or above option would enable a trader to generate returns from the forecast made herewith. The option can be picked from any reliable binary broker when the EURUSD pair trades near 1.0580. A date around March 15th can be selected for the expiry of the option.
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.
