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EUR/USD bearish in short-term with ‘moderate’ euro area inflation

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Analysis by Golden FX Link Capital business manager Chhea Chhay Heng

EUR/USD bearish in short-term with ‘moderate’ euro area inflation

The trading value of the EUR/USD currency pair has been weakening, hovering around 1.18400 to 1.21200.

The drop also hit a record low in 14 months, and the bearish outlook is expected to continue for a short-term fall.

“Last Wednesday’s meeting of the Federal Open Market Committee [FOMC], which decides on US monetary policy, looks to have ushered in a new era of EUR/USD weakness – seemingly providing confirmation that the FOMC will tighten policy in this cycle well before the European Central Bank’s more dovish rate-setting Governing Council,” analyst Martin Essex wrote on Daily FX on Sunday.

However, according to Bloomberg on Monday, ECB president Christine Lagarde said that the “accelerating US inflation that prompted the Federal Reserve to shift its view of price risks will have only a limited impact in the euro area”.

Lagarde told lawmakers in the European Parliament on Monday that “spillovers can occur through the direct channel of imported goods originating in the United States and through several indirect trades or expectations mechanisms”.

The effects on euro-area inflation “are expected to be moderate” overall, Bloomberg reported the former managing director of the International Monetary Fund as saying.

According to the New York-based financial media company: “That view highlights a difference in threat assessments between the ECB and the Fed, which last week acknowledged the risk that inflation could be faster than forecast as it pulled forward expectations for the timing and pace of interest-rate increases.”

Therefore, EUR/USD has been moving around 1.18400 to 1.20200 while the release of data such as the euro zone flash manufacturing PMI and flash service PMI is awaited – which will all indicate the market’s future direction.

For next week’s trading recommendation based on the bearish outlook, traders can follow the trend and wait for the opportunity to sell at 1.20200 – which is the peak point of the current downtrend in EUR/USD price – by placing a take-profit function at 1.19500 and a stop-loss function at 1.20950.

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