Despite past expectations

Hi, dear traders!

The previous week did not bring any changes for EUR/USD, despite past expectations. The European Central Bank is in no hurry to quell rising inflation, which has already reached 7.5%. Some analysts even see inflation in the EU reach 10%. However, the ECB and its president Christine Lagarde are only giving vague hints about the start of monetary tightening. It remains unclear when it would begin and how far it would go, as the EU regulator plans to end its APP stimulus program this summer. An interest rate increase could only begin after APP is concluded. The rhetoric of Lagarde and ECB policymakers has become slightly more hawkish, but they have not announced any concrete measures.

The Federal Reserve, on the other hand, has already begun its monetary tightening cycle and has already announced its plans. The Fed's position is clear and confident. In May, the FOMC agreed to increase the Fed funds rate by 50 basis points. It is very likely that the US central bank will repeat this hike at the next two Fed meetings, at the very least. Earlier, the president of the Fed Reserve Bank of Cleveland Loretta Mester backed such a move, noting that inflation risks remained on the upside due to lockdowns in China and the war in Ukraine. The Fed cannot influence either of these factors, making interest rate hikes the primary tool to bring high inflation under control.

Weekly

The highlighted second-to-last Doji candlestick on the weekly chart could have sent EUR/USD into a correction. However, it did not happen, indicating the bearish momentum remains very strong. The pair is moving downwards, repeatedly ignoring such potential reversal signals. Bullish traders can only steer the pair into relatively small upward corrections. EUR/USD is currently unable to retrace back to the levels it had broken through earlier. The pair bounced off the strong technical level of 1.0350 and finished last week at 1.0409. Even though EUR/USD closed above 1.0400, it is unlikely to influence the pair's trajectory. Judging by last week's performance, the downtrend will likely continue - EUR/USD is set to test 1.0350, as well as the key historical and technical level of 1.0300.

Daily

As forecasted on Friday, EUR/USD rebounded to 1.0400 and 1.0420. It could then retrace back to the broken support level of 1.0470. In this situation, traders can open short positions in the 1.0465-1.0495 area. Above 1.0470 and close to 1.0500 lies the red Tenkan-Sen line of the Ichimoku cloud, which could serve as a significant obstacle for the pair. The main trading strategy at this point is opening short positions after upward corrections.

Good luck!