Long EUR/USD Post Central Bank Meetings Pending a Pullback
LONG EUR/USD ON A PULLBACK
- ECB and President Lagarde Eyeing Further Hike in July and Possibly More to Thereafter as ECB Upwardly Revise Inflation Expectations.
- EUR/USD Rally Gains Traction but 14-day RSI and Price Action on the H4 Timeframe Hints at a Pullback.
- Retracement Needed for Bullish Continuation Setups to Come into Play.
- The Analysis in this Article Makes use ofChart Patternsand KeySupport and ResistanceLevels. For More Information Visit our ComprehensiveEducation Library.
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Following the ECB meeting today we now have some revised projections from both the ECB and the Federal Reserve. Taking a look at the respective Central Bank meetings and the narrative hasn’t changed for me with the ECB still likely to continue hiking for a longer period.
A brief look at the updated ECB staff projections shows an increase in inflation projections for 2023, 2024 and 2025. The 2023 core inflation rate in particular saw a 0.5% revision higher to 5.1% from 4.6% previously. There was also a downward revision on growth which would effectively hint at hiking into a recession, something ECB policymakers were looking to avoid. However, with the tourist season upon us I do see the Euro Area benefitting while inflation could also remain sticky as service and food prices may also feel the effects of a tourism increase.
Looking at the Federal Reserve and the “hawkish” pause there is definitely still room for further hikes moving forward as we saw the Fed increase their peak rate projection to 5.6% up from 5.5% previously. As Fed Chair Powell stated however, the timeframe on future increases is not se with there a very real probability of a pause in July in my opinion.
In conclusion, heading into next month's meeting and into Q3 I am eyeing further upside beyond the current YTD highs in EURUSD with the challenge now being getting the best possible risk to reward for my preferred setup.
TECHNICAL OUTLOOK AND POTENTIAL SETUPS
EUR/USD Daily Chart – June 15, 2023
On the daily chart we can see the explosive rally to the upside today post the ECB meeting. This obviously doesn’t bode well for me as I look at the potential for a long setup, however this is a swing trade after all with my medium-term targets resting around the 1.1200 area.
Overall structure and price action are hinting at a fresh higher high after finding support at the 1.0680 handle which lined up with the 78.6% fibonacci retracement level. EURUSD has also broken back above the 100-day MA which has remained pivotal for the pair this year.
Looking at it from a swing trading perspective and a pullback toward the 100-day MA would be preferred and provide the best risk-to-reward opportunity while support at the 1.0840 zone may also be a potential area of interest.
EUR/USD Four-Hour Chart– June 15, 2023
Dropping down to a H4 chart and we have printed a new high with the RSI also entering overbought territory which could be a sign of a potential pullback. There should be a host of opportunities to jump on the bullish bandwagon where EURUSD is concerned but timing it appropriately remain a challenge which is why I am sticking to the larger timeframes.
On the H4 the I would be looking for a pullback as indicated on the chart toward the 1.08400 level which rests just above the 200-day MA. This would ultimately prove the best risk-to-reward opportunity with a tight stoploss to keep risk management in check.
There are two events that would invalidate my potential setups here leading me to re-evaluate. The first would be a break of the 1.1000 psychological level without a pullback to the 1.0840 level first. The second would be a daily candle close below the 1.0800 would also invalidate the bullish setups which I hope come to fruition soon.
Key resistance levels:
- 1.1000 (psychological level)
Key support levels:
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Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.