The EUR/USD currency pair rebound continued for the second day after it plunged last week following the announcement of the 2nd rate hike of the current year by the U.S. Federal Reserve. Two more rate hikes are expected to make it a total of four in 2018. In contrast, the European Central Bank ECB, maintained a cautious approach to interest rates saying there will be no rate hikes through the summer of 2019. This resulted in what has been the biggest single day plunge of the EUR/USD currency pair in recent months.
The pair dropped nearly 250 pips from a high of about 1.1810 to trade at just over 1.1564 as investors moved quickly to act on the two contrasting news events by the two economic bodies. However, the Euro has regained some ground against the USD over the last two trading session and this sets the pair up for an interesting trading opportunity for Tuesday, June 19 through Friday.
Looking at the 4-hourly (240 min) chart above, the EUR/USD currency pair appears to be consolidating at a region just above the current multi-month low of 1.1520. The recent rebound pushed the pair to trade within touching distance of 1.1630 level, but the short-term resistance appears to be forming just below the 1.1600 mark.
Nonetheless, based on recent exchange rate movement between the EUR/USD, traders of the pair could still retain optimism with a bullish outlook with a near-term target at about 1.1630 (R1). And for those looking beyond the current week, (R2) at 1.1725 presents a good bullish opportunity while (R3) at around the 1.1800 trading zone is the target for those looking a full recovery for the currency pair from the recent landslide plunge.
Should the pair lose the momentum that triggered the rebound, thus resulting in a movement further downwards, then traders can begin to look at bearish opportunities at (S1) 1.1565 and a few paces lower at 1.1535 (S2).
So, generally, based on the 240-minute chart, the expectation here is that the short-term rebound will continue for the next few days. But could the daily chart paint a different picture to the expectations already at hand?
Let’s examine.
By expanding the analysis window, we can see that the recent decline in the exchange rate for the EUR/USD currency pair came following a major rebound, which started at the beginning of June through 12th. In fact, the EUR/USD currency pair is currently on a downward trending sequence of lower highs and lower lows and the early June rebound only took the pair to a point that confirmed that.
In this series of lower highs and lower lows, we have two patterns. The first is designated by the steeper and longer diagonal line while the second, which extends back to the start of May 2018 is less steep. This shows that while the downward trend could continue to the foreseeable future, the pair could be receding to form a horizontal channel, which could eventually trigger a complete change in the trend.
So, what are the EUR/USD immediate trading opportunities that traders could potentially target based on the daily chart? The targets derived using the 4-hourly chart hold for trading opportunities within the next 24-hours. However, for those looking for opportunities potentially maturing by the end of the week, (S1) at 1.1520 presents a realistic bearish trading target while (R1) at 1.1640 could attract the interest of the bulls.
Fundamentals outlook
From a fundamental perspective, geopolitical jittering in Germany concerning immigration policies continue to cap the pair’s upside potential while the recent dovish economic outlook from the ECB adds to the pressure. On the other hand, the USD continues to thrive from last week’s rate hike and even the brewing trade wars with China cannot be perceived to be a major threat. The strength of the Dollar against the Euro remains steady unless the latter can draw some positive backing from the region’s upcoming economic numbers this week.
ECB’s President Draghi is scheduled to speak tomorrow, Tuesday, June 19, 2018 while Current Account numbers will be announced in the morning at 08:00 O’clock. On the other hand, Federal Reserves Bullard will be delivering his speech at the same time ECB chief economist Peter Praet will be issuing his. Therefore, there is no doubt that there are major events to look forward to on Tuesday and depending on the sentiment sent to the market, the EUR/USD currency pair could experience a slightly turbulent trading session for the day.