How the EURUSD last week put in place a tradable low

The main job for traders this week will be to continue to digest the implications of last week’s historic moves by key central banks.

While the Fed, the SNB and the BoJ captured most of the headlines it was last week’s ECB emergency meeting that covered the “fragmentation issue” that provides the backdrop for this trade idea.

The "fragmentation issue" refers to prospects of a first ECB rate hiking cycle in over a decade that has seen the bond yields on weaker nations surge in recent months, reigniting fears of a rerun of the 2010 European debt crisis.

To prevent a recurrence, the ECB at its emergency meeting last week preannounced that it would introduce a new sovereign credit backstop (anti-fragmentation tool).

While details are light at this stage, a credit backstop is significant for yields and ensures that ECB rate hikes are transmitted equally across the eurozone members rather than only onto weaker heavily indebted nations.

In theory, this will allow the ECB to hike faster, away from negative rates towards the neutral rate, a positive for the EURUSD.

Elsewhere the surprise rate hike by the SNB put the spotlight on the traditional funding currencies, including the CHF, EUR and JPY.

While the BoJ confirmed it has no intention of doing away with its dovish yield curve control just yet, the ECB is itching to raise rates and will get started next month possibly by as much as 50bp.

Due to the challenging inflation and growth backdrop, we have been medium-term EURUSD bears. However, based on last week’s shifts outlined above and after the EURUSD tested and recently held the 1.0350 support zone, we think the EURUSD is right for a rebound towards 1.0780/00.

To take advantage of this, we favour buying the EURUSD on dips to 1.0500/1.0480. The stop loss would be placed at 1.0340 and the profit target is resistance at 1.0780/1.0800.

Source Tradingview. The figures stated are as of June 20th 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.