The euro has been especially weak this year amongst the resurgence of monetary policy tightening around the world. Inflation has impacted the market on a global scale as each country attempts to curb these numbers form going any higher. Here are some reasons, however, why we think the euro will not remain strong any time soon, as well as our best trade setups for these pairs.
ECB On Euro
The European Central Bank plans on raising interest rates for the first time in 11 years. Their plan is to reach a 2% inflation target in the medium term. However, the first move planned for July is a mere 25 basis points. They will need to up their rate of interest at a higher pace if they truly plan on reaching that target within the next year or so.
Most countries are struggling with slowing economic growth while on track to quell inflationary pressures. However, Europe is the laggard, and are not moving in the direction as quickly as others. Although wages are rising, the gap between that and inflation is a widening margin. Economists are concerned that the growing gap will continue.
As of now, borrowing costs are exceeding targets by 2.40% in relation to pre-pandemic levels. Other metrics say that rates are not as far from the targets as they think, but it is still somewhat of a concern in the eyes of an investor who sees a risk-off environment.
The euro has yielded a negative interest since 2014 and expects to enter positive territory next quarter. German and French PMI both missed projections last week while consumer sentiment remains at a record low.
This is a result of the increased cost of living weighing on people's wallets. This kind of sentiment is expected to persist for some time, according to officials. The consistently slow growth paired with the incessant CPI numbers are very concerning over time.
Euro Trade Setups
EURJPY comes down today, but flew up to the highs and established a triple top on the 4H. Rejection on the previous candle shows strong pressure to the downside after that inverted hammer close. ECB plans to hike their rate by 25 bp in July which marks the first time in over a decade. However, the euro is falling on the news as of now which might be because their central bank's policy might not be aggressive enough to fight inflation and reach the 2% target any time soon. Support lies on the rising trend line which is also paired with support around 141.5.
EURUSD looks bullish in the short term after bouncing off some clean support from the rising trend line on the 4H timeframe. The pair is still struggling with a directional shift as markets remain shaky. The long term falling trend line has served as strong resistance this year as price cannot seem to break above that. The pair might also break lower under the rising trend line and retest the lows at a double bottom.
EURCAD is slightly higher after pulling back from the June highs. The pair has been ranging for the past three months in a sideways direction. However, there are some bullish indicators in the short term for the pair from the previous 4H candle pin bar pattern. Price could come up to the 1.35800s before seeing clear resistance as another test at the lows seem increasingly likely in this risk-off environment.
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